Your Firm Can Borrow Fixed at 8% and Floating at Libor+1

question 27

Multiple Choice

Your firm can borrow fixed at 8% and floating at Libor+1%. You can also enter into a fixed-for-Libor swap where the fixed rate is 7.5% (and the swap has the same maturity as the borrowing) . What is the cheapest way for the firm to obtain fixed rate financing?

• A) Borrow at the fixed rate.
• B) Borrow at the fixed rate and then swap into floating rate using the swap.
• C) Borrow floating rate and then swap into fixed rate using the swap.
• D) Both (a) and (b).

---

Definitions:

Duty Driven

Motivated by a sense of obligation or responsibility towards certain tasks or principles, regardless of personal gain.

Ethical Theory

A branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct.

Bonuses

Bonuses are additional financial incentives given to employees or individuals beyond their regular salary or earnings, typically as a reward for performance or achieving specific targets.

Thriving

A state of flourishing or prospering, often characterized by vigorous growth, success, or well-being.