Assume that the following interest rates at which firms A and B can borrow:
Fixed rate Floating rate
Firm A 8% LIBOR + 1%
Firm B 9% LIBOR + 1.4%
Premium paid by B over A 1% 0.4%
Also assume that A ultimately wants a floating rate loan while B wants a fixed rate loan. Design an interest rate swap so that both can benefit, assuming that no swap bank is involved
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