A Firm Can Borrow at a Floating Rate of LIBOR

question 71

Multiple Choice

A firm can borrow at a floating rate of LIBOR + 1% on short-term loans.It swaps its short-term payments so that it receives LIBOR + 2% and pays a fixed rate of 3%.If the notional principal is $50 million,what is the amount the firm pays under the swap?

• A)$1 million
• B)$1.5 million
• C)$2 million
• D)$2.5 million
• E)$3 million

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Definitions:

Hypnosis

A trance-like state of focused attention and heightened suggestibility, with diminished peripheral awareness, often induced by a therapeutic process.

Prozac

A brand name for fluoxetine, a selective serotonin reuptake inhibitor (SSRI) used to treat depression, OCD, and several other psychological conditions.

Antidepressant

A type of medication designed to alleviate symptoms of depressive disorders by modifying brain chemistry.

Antianxiety

Relating to or denoting drugs used to prevent or reduce anxiety, often by affecting the central nervous system.