Firm a Is Paying a Fixed $700,000 in Interest Payments

question 42

Multiple Choice

Firm A is paying a fixed $700,000 in interest payments, while Firm B is paying LIBOR plus 50 basis points on $10,000,000 loans. The current LIBOR rate is 6.25%. Firm A and B have agreed to swap interest payments, how much will be paid to which Firm this year?

• A) A pays $750,000 to Firm B
• B) B pays 25,000 to Firm A
• C) B pays $50,000 to Firm A
• D) A pays $25,000 to Firm B

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