General Electric (GE) and Intel each wish to borrow the same amount of capital a
ID: 2784182 • Letter: G
Question
General Electric (GE) and Intel each wish to borrow the same amount of capital at low cost potentially wap. They face the following bank loan borrowing rate structure in fixed and floating lending Fixed Rate Borrowing Floating Rate Borrowing 10% LIBOR +3% 75% LIBOR + 2.5% a. Which firm is the more credit-worthy firm? Circle one Intel GE b. In whi ch market does GE have a comparative advantage? In which market does Intel havea comparative advantage? Circle one for each firm: Intel: FLOATING FIXED GE FLOATING FIXED If GE prefers to borrow at a fixed rate and Intel prefers to borrow at a floating rate, is a mutually beneficial swap possible? Circle one c. NO YES If yes, how many total percentage points in interest could both firms save (that is, combined) if they engaged in an interest rate swap? Fill in the blank Percentage pointsExplanation / Answer
A)GE is Credit worthy
B) GE has advantage in Floating rate and Intel has advantage in Fixed rate
C)Yes mutually benefeciary is possible as they can enter into agreement at certain rate or cash.Percentage points cannot be decided as LIBOR rate is not specified if we consider LIBOR rate 4% then difference would be 3%
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