Company X Wants to Borrow $10,000,000 Floating for 5 Years;

Multiple Choice

Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000 fixed for 5 years.Their external borrowing opportunities are shown here: $$\begin{array} { c c c } & \text { Fixed-Rate } & \text { Floating-Rate } \\&\text { Borrowing Cost } & \text { Bortowing Cost } \\\text { Compary X } & 10 \% & \text { LIBOR } \\\text { Compary Y } & 12 \% & \text { LIBOR } + 1.5 \%\end{array}$$ A swap bank is involved and quotes the following rates five-year dollar interest rate swaps at 10.05 percent?10.45 percent against LIBOR flat. Assume both X and Y agree to the swap bank's terms.Fill in the values for A,B,C,D,E,& F on the diagram.

A) A = LIBOR; B = 10.45%; C = 10.05%; D = LIBOR; E = LIBOR; F = 12%
B) A = 10%; B = 10.45%; C = 10.05%; D = LIBOR; E = LIBOR; F = LIBOR + 1½%
C) A = 10%; B = 10.45%; C = LIBOR; D = LIBOR; E = 10.05%; F = LIBOR + 1½%
D) A = 10%; B = LIBOR; C = LIBOR; D = 10.45%; E = 10.05%; F = LIBOR + 1½%