Use the following information for the problem Bank E: Bank E is an international bank located in Germany. It wants to ra

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Use the following information for the problem
Bank E: Bank E is an international bank located in Germany. It
wants to raise $100,000,000 to finance floating-rate Eurodollars
loans. Bank E currently has 15-year fixedrate Eurodollar bonds at 8
percent. It wishes to finance its floating-rate Eurodollar loans
with floating–rate notes at LIBOR (London Interbank Offer
Rate).
Firm F: Firm F is a U.S. company. It needs $100,000,000 to
finance an investment with a 15-year economic life. Firm F has
5-year floating-rate notes at LIBOR + 1 percent. Firm F would
prefer to borrow at a fixed rate.
Below are the borrowing opportunities of Bank E and Firm F
without a swap bank.
The swap bank, acting an intermediary for Bank E and Firm F,
makes the following offer to Bank E. Bank E pays the swap bank
LIBOR – 0.50% per year on $100,000,000 for 15 years and the swap
bank will pay Bank E 8.5% on $100,000,000 for 15 years.
The swap bank makes the following offer to Firm F. Firm F pays
the swap bank 9.0 percent per year on $100,000,000 for 15 years and
the swap bank will pay Firm F LIBOR – 1% per year on $100,000,000
for 15 years.
Bank E→LIBOR 0.50%→Swap Bank→LIBOR1%→ Firm F
Firm F→9.0%→Swap Bank→8.5%→Bank E
Compute the annual cost savings from the swap bank offers to
Bank E and Firm F. Also calculate the annual cash flow to the swap
bank. Ignore the time value of money of the cash flows.