5.15 The Comparative advantage (continued) One possible swap is 9.95% ompany Company 10% A B LIBOR LIBOR +1% Company a has 3 sets of cash flows 1. Pays 10%pa to outside lenders 2. Receives 9.95%pa from B 尸 ays libor+0.05% 3. Pays libor to B a 25bp gain Company b has 3 sets of cash flows 1. Pays LIBOR+1.00%pa to outside lenders 2. Receives lIboR from A Pays 10.95%pa 3. Pays 9.95% to A a 25bp gain Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal UniversityOptions, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 5.15 The Comparative Advantage (continued) • One possible swap is • Company A has 3 sets of cash flows 1. Pays 10%pa to outside lenders 2. Receives 9.95%pa from B Pays LIBOR + 0.05% 3. Pays LIBOR to B a 25bp gain • Company B has 3 sets of cash flows 1. Pays LIBOR + 1.00%pa to outside lenders 2. Receives LIBOR from A Pays 10.95%pa 3. Pays 9.95% to A a 25bp gain Company B Company A 9.95% LIBOR 10% LIBOR + 1%