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

question 1

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 below: A swap bank is involved and quotes the following rates five-year dollar interest rate swaps at 10.05%-10.45% against LIBOR flat. Assume company Y has agreed,but company X will only agree to the swap if the bank offers better terms.
What are the absolute best terms the bank can offer X,given that it already booked Y?

• A)10.45%-10.45% against LIBOR flat.
• B)10.45%-10.05% against LIBOR flat.
• C)10.50%-10.50% against LIBOR flat
• D)none of the above

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Definitions:

Coral Polyps

Small, soft-bodied organisms that are the primary builders of coral reefs, living in large colonies where they secrete calcium carbonate to form the reef's structure.

Zooxanthellae

Microscopic algae that live symbiotically within the cells of coral and other marine organisms, providing them with nutrients through photosynthesis.

Shoreline

Denotes the edge or boundary where a body of water meets the land, often affected by natural phenomena like tides and erosion as well as human activities.

Continental Shelf

The extended perimeter of each continent that lies under the ocean and stretches from the coastline to a sharp drop-off into the deep ocean floor.