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Bank a Is Able to Raise Funds at Libor yy Bps What Range of Basis Points

Question 1

Multiple Choice

Bank A is able to raise funds at Libor + 10 bps. Bank B does so at Libor + 40 bps. Bank A buys a credit risky asset returning Libor + 100 bps, and then A and B enter into a total return swap (TRS) where A pays B the total return on the asset in return for Libor + yy bps. What range of basis points yy would be acceptable to both parties in the contract?


A) y<100y < 100
B) y>10y > 10
C) 40<y<6040 < y < 60
D) 10<y<4010 < y < 40

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