Company A needs $30 million at a floating-rate to fund a 5-year project while Company B desires $30 million at a fixed rate to complete its 5-year construction plans. Company A and Company B have been offered the following rates per annum on a $30 million 5-year loan:
Fixed rate Floating rate Company A: 12.0% LIBOR + 0.1% Company B: 13.4% LIBOR + 0.6%
a. What might explain the differences in the rates offered the two companies?
b. What is the QSD in this case?
c. Design a swap that will net a bank, acting as intermediary, 0.1% per annum and that will appear equally attractive to both companies.