Question
ABC Corp can borrow at a floating rate of LIBOR + 4.97% or at a fixed rate of 15.62%, but prefers to take out a
ABC Corp can borrow at a floating rate of LIBOR + 4.97% or at a fixed rate of 15.62%, but prefers to take out a floating rate loan. DEF Inc can borrow at a floating rate of LIBOR + 2.13% or at a fixed rate of 14.2%, but prefers to take out a fixed rate loan.
Suppose ABC Corp and DEF Inc enter into an interest rate swap agreement and decide to split the cost savings at a ratio of 80% (DEF) to 20% (ABC).
At what rate can DEF borrow for its fixed rate funds?
Select one:
a. 13.0640%
b. 13.4900%
c. 12.7800%
d. 14.20%, DEF should not enter into this swap with ABC
e. None of these options
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