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Question: interest rate swap hw problem firm a can issue fixedrate...

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INTEREST RATE SWAP HW PROBLEM Firm A can issue fixed-rate debt e-40:0 and floating rate debt e LIBOR+ 20 bps. Firm B, less credit worthy, can issue fixed-rate debt @ 12.0% and floating rate debt @ LIBOR + 60 bps. Firm A wishes to issue floating rate debt and firm B wishes to issue fixed rate debt. Take the part of a swap intermediary and create a fixed floating interest rate swap with terms that benefit all three partiesfirm A, firm B, and the intermediary Instructions: 1.) Choose any terms you wish. 2.) Draw, a cash flow diagram showing cash flows between a 3.) State separately the net gain to firm A, firm B, and ll parties involved. the intermediary. pv-

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