Interest rate swap. Janutis plc has just issued fixed rate debt at 10%. Yet, it prefers to convert its financing to incur a floating rate on its debt. It engages in an interest rate swap in which it swaps variable rate payments of LIBOR plus 1% in exchange for payments of 10%. The interest rates are applied to an amount that represents the principal from its recent debt issue in order to determine the interest payments due at the end of each year for the next three years. Janutis plc expects that the LIBOR will be 9%

at the end of the first year, 8.5% at the end of the second year, and 7% at the end of the third year.

Determine the financing rate that Janutis plc expects to pay on its debt after considering the effect of the interest rate swap.