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