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: $$\begin{array} { l l l } & \text { Fixed-Rate Borrowing } & \text { Floating-Rate } \\& \text { Cost } & \text { Borrowing Cost } \\\hline \text { Company X } & 10 \% & \text { LIBOR } \\\text { Company Y } & 12 \% & \text { LIBOR } + 1.5 \%\end{array}$$ Design a mutually beneficial interest only swap for X and Y with a notational principal of $10 million by having appropriate values for A = Company X's external borrowing rate
B = Company Y's payment to X (rate)
C = Company X's payment to Y (rate)
D = Company Y's external borrowing rate

A) A = 10%; B = 11.75%; C = LIBOR - .25%; D = LIBOR + 1.5%
B) A = 10%; B = 10%; C = LIBOR - .25%; D = LIBOR + 1.5%
C) A = LIBOR; B = 10%; C = LIBOR - .25%; D = 12%
D) A = LIBOR; B = LIBOR; C = LIBOR - .25%; D = 12%