A Firm Can Borrow at a Floating Rate of LIBOR

question 94

Multiple Choice

A firm can borrow at a floating rate of LIBOR - 1% on short-term loans.If it swaps its short-term payments so that it receives LIBOR + 1.5% and pays a fixed rate of 5%,what is the rate of interest on its borrowing?

• A)4.5%
• B)2.5%
• C)5.0%
• D)5.5%
• E)7.5%

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Definitions:

Problem-Factoring Process

A methodical approach to solving problems by breaking them down into smaller, more manageable components.

Logical

Pertaining to or characterized by clear, sound reasoning and thought.

Multiple Perspectives

The consideration of different viewpoints or angles on a particular issue or topic.

Informational Report

A document that provides facts and data without analysis or recommendations, often used for reference or record-keeping.