Assume a prefers a fixed rate and b prefers floating rate, Financial Management

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Assume a prefers a fixed rate and b prefers floating rate

Two companies have investments which pay the following rates of interest:

Firm A: Fixed- 6% / Float- LIBOR

Firm B: Fixed- 8% / Float- LIBOR + 0.5%

Assume A prefers a fixed rate and B prefers a floating rate. If an intermediary charges both parties equally a 0.1% fee and any benefits are spread equally between Firm A and Firm B, what rates could A and B receive on their preferred interest rate? Show all working.

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Financial Management: Assume a prefers a fixed rate and b prefers floating rate

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