Homework Answers
1. Total Savings
Original Cost to both companies= Fixed Cost from Bank A + Floating Cost from Bank B
= 9% + 0.2% + L+ 0.3%+0.3%
= L + 9.8%
Revised cost in case of swap= Floating Cost from Bank A + Fixed Cost from Bank B
= L+0.34% + 0.2% + 7.7%+0.3%
= L + 8.54%
Savings= L + 9.8% - (L + 8.54%)
= 1.26%
2. Fixed Rate charged to Company A
Total savings given to Company A= 40% of 1.26% = 0.504%
Revised Fixed Cost for Company A= Original Fixed Cost for Company A- Savings
= 9% - 0.504= 8.496%
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