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Sagot :
Advertising, sales promotion, or public relations are frequently used in mass selling. The two firms' combined effective return will be X = 8% + 0.3% = 8.3%. LIBOR + 0.3% = Y = LIBOR + 0.3% where investments with fixed rates (x) and adjustable rates (y) are made.
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Briefing:
Total return if Company X invests at Fixed rate and Y borrows at floating rate = 8% + LIBOR = LIBOR + 8%
total return if X invests at floating rate and Y invests at fixed rate under swap = LIBOR + 8.8% = LIBOR + 8.8%
Gain under swap = 0.8%
Intermediary = 0.2%
Shared by each company = 0.6%/2 = 0.3%
Effective return will be
X = 8%+0.3% = 8.3%
Y = LIBOR + 0.3% = LIBOR + 0.3%
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