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Question (1) Firm “A” prefers to borrow float-rate while firm “B” prefers to borrow fixed-rate. “A”...

Question (1)

Firm “A” prefers to borrow float-rate while firm “B” prefers to borrow fixed-rate. “A” is offered 4.5% fixed rate and LIBOR float rate, while “B” is offered 6% fixed rate and LIBOR+0.5% float rate. If both firms approach you as an MSF elite graduate for a consultation to reduce their borrowing costs, suggest (voluntarily) an interest rate swap structure where “A” benefits 75% of the cost reduction and “B” benefits 25% of the cost reduction.

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