* If the face value of a bond is not given, assume the face value as 100. 1. What would be the gains from trade of entering into a swap for these two firms? Firm A Firm B Fixed Rate 5% 9% Floating Rate LIBOR + 1% LIBOR + 3%
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For Firm A: Fixed rate = 5% Face value = 100 Fixed rate payment = Fixed rate * Face value = 5% * 100 = 5 For Firm B: Fixed rate = 6% Face value = 100 Fixed rate payment = Fixed rate * Face value = 6% * 100 = 6 Show more…
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