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 here: Fixed-Rate Borrowing Cost 10% Floating-Rate Borrowing Cost LIBOR Company X Company Y 12% LIBOR + 1.5% A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 at a rate of LIBOR -0.15 percent; in exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90 percent. What is the value of this swap to company X? O Company X will save 25 basis points per year on $10,000,000 $25,000 per year. O Company X will lose money on the deal. Company X will save 5 basis points per year on $10,000,000 $5,000 per year. O Company X will only break even on the deal.
