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Suppose that Company A borrows $100mil long-term at a cost of 8% p.a. and Company B...

Suppose that Company A borrows $100mil long-term at a cost of 8% p.a. and Company B can borrow $100mil short-term at a cost equal to the 6-month LIBOR rate plus a spread of 100 bps. Both companies agree to enter into an interest rate swap agreement whereby A pays the LIBOR rate plus 50 bps. to B, and B pays 8.5% p.a. fixed to A. What is the net borrowing cost to each company?

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