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Business, 24.12.2020 01:30 bigred89

ABC Company and XYZ Company need to raise funds to pay for capital improvements at their manufacturing plants. ABC is well established company with an excellent credit rating in the debt market; it can borrow funds either at 8.5% fixed rate of at LIBOR 0.5% floating rate. XYZ Company is a fledgling start-up firm without a strong credit history. It can borrow funds either at 9.5% fixed rate or at LIBOR 2.5% floating rate. There is an opportunity for ABC and XYZ to benefit by means of an interest swap. 9. Suppose they agree to swap their obligations. Specifically, Company ABC will issue debt in the floating rate market (at LIBOR 0.5%), and Company XYZ will issue debt in the fixed rate market (at 9.5%). Then, Company ABC will pay 8% fixed rate to Company XYZ, while receiving LIBOR 0.25% floating rate from Company XYZ. What is the gain to Company ABC from the swap

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