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# Please also draw a diagram,showing the LIBOR

arrow going in or out as well as the interest rates going in or out. Please show detailed explanation for this practice problem.

3. Company X and Company Y have been offered the following rates
Fixed Rate
Floating Rate
Company X
3.5%
3-month LIBOR plus
10bp
Company Y
4.5%
3-month LIBOR plus 30
bp
Suppose that Company X borrows fixed and company Y borrows floating. If
they enter into a swap with each other where the apparent benefits are
shared equally, what is company X's effective borrowing rate?

Pay's Floating
X
Pays Fixed
3.590
Pay's fixed
3. 5%0
Pays Floating
Lt0. 310
EFFECTIVE COST PB. 3 5 /
L - 0 . 3 y .
Effective lost
4. 1 10

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