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

Question 24

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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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