Company A, a low-rated firm, desires a fixed-rate, long-term loan. A currently has access to floating interest rate funds at a margin of 0.5% over LIBOR. Its direct borrowing cost is 13% in the fixed-rate bond market. In contrast, company B, which prefers a floating-rate loan, has access to fixed-rate funds in the Eurodollar bond market at 11% and floating rate funds al LIBOR + 1.5% How can A and B use a swap to advantage?

A and B can go into a swap to gain advantage while still borrow at their desired rate. Details are in the explanation part.

Explanation:

Both A and B will borrow the same amount in the market, in which:

+ A can borrow from outside, floating at LIBOR + 0.5%. Go to a swap with B to receive LIBOR to B and pay fixed rate of 12% on the borrowed amount. So, total interest rate A has to pay is: Libor - (Libor + 0.5%) - 12.0% = -12.5% or 12.5% fixed => A borrowed fixed at 0.5% lower.

+ B can borrow from outside, fixed at 11%. Go to a swap with A to receive fixed rate of 12% and pay Libor to B on the borrowed amount. So, total interest rate B has to pay is: 12% - Libor -11% = -(Libor - 1%) or Libor - 1% floating => B borrowed floating at 2.5% lower.

anyone below or above ambitious can tell you. so crowns mean brainliest. getting brainliest means your answer needs a good explanation and the person asking the question can understand your answer easily. so say there's a multiple choice question. you don't just want to say your answer is a, hope it . provide evidence and reasoning so that they know that that is the correct answer. a good explanation should have evidence, good reasoning, and your opinion on why you picked that. you don't want to look up their question on the internet and see if you can answer it. pick questions that you 100% know the answer to, so than that way you can provide a better explanation.

best of luck,

the divergent