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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