A firm would like to have debt with a floating rate since its assets have floating rates, but has a high variable rate of debt of LIBOR + 1% (for this problem LIBOR is currently 10%) and a lower cost for fixed debt of 9.5%.
A broker finds a counterparty for a liability swap that has a fixed rate of 12% and a floating rate of LIBOR + .25% for its debt.
The broker will charge a fee of 0.4%. The Swap will be set up so that each respective party will issue its lowest cost type of debt. Then the firm with the fixed rate debt financing will receive a cash inflow of LIBOR + 1% from the other party and will pay out a cash outflow of 10% to the other party.
What are respectively the effective rates paid by the firm and the counterparty with this liability swap and the advantage of the swap to each party?

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The Answer of A firm would like to have debt with a floating rate since its assets have floating rates, but has a high variable rate of debt of LIBOR + 1% (for this problem LIBOR is currently 10%) and a lower cost for fixed debt of 9.5%.
A broker finds a counterparty for a liability swap that has a fixed rate of 12% and a floating rate of LIBOR + .25% for its debt.
The broker will charge a fee of 0.4%. The Swap will be set up so that each respective party will issue its lowest cost type of debt. Then the firm with the fixed rate debt financing will receive a cash inflow of LIBOR + 1% from the other party and will pay out a cash outflow of 10% to the other party.
What are respectively the effective rates paid by the firm and the counterparty with this liability swap and the advantage of the swap to each party?

A Firm Would Like to Have Debt with a Floating