A Firm Can Borrow at a Floating Rate of LIBOR

question 97

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 + 1.5% and pays a fixed rate of 5%.If the notional principal is $25 million,what is the amount the firm pays under the swap?

• A)$125,000
• B)$31,250
• C)$62,500
• D)$93,750
• E)$125,500

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Definitions:

Environmental Factors

External elements such as climate, weather, and ecological conditions that can affect businesses, people's lives, and the overall environment.

Authority Relationships

The dynamics between individuals where one has the right to direct or influence the behavior of another.

Franchise

A business model that allows individuals or entities to operate a branch of an established company with certain conditions and support.

Division

A distinct part of an organization or company that operates semi-independently, usually specializing in a particular product or market sector.