A Firm Can Borrow at a Floating Rate of LIBOR

question 48

Multiple Choice

A firm can borrow at a floating rate of LIBOR + 2.5% on short-term loans.If it swaps its short-term payments so that it receives LIBOR + 1.25% and pays a fixed rate of 3.75%,what is the rate of interest on its borrowing?

• A)5.00%
• B)3.75%
• C)7.50%
• D)2.50%
• E)1.25%

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Definitions:

Big Business

Large-scale commercial enterprises that have significant influence on the economy and politics of a country.

Organized Labor

A collective association of workers, often a union, formed to protect and further their rights and interests.

Push Poll

A misleading survey designed to influence or alter the view of respondents under the guise of conducting a poll.

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The act of spreading harmful or unfavorable data or news widely.