ABC is a European MNC that has not accessed the European debt market because of concern about the potential appreciation of the EUR against the currencies of their primary customers. ABC prefers to borrow floating rate dollar debt, which they can currently access directly at LIBOR + 0.25%. In contrast, DEF has a strong preference for fixed rate EUR debt. However, because DEF is unknown in the European market it must pay a 2.75% premium above the 5.75% coupon that ABCs EUR-denominated notes would carry. DEF, can currently obtain floating Eurodollar funding at a rate of LIBOR + 1.50%. What rates will the two counterparties pay after the swap if the cost savings are split equally?

a. ABC will pay LIBOR 0.5% ; DEF will pay 7.75%. b. ABC will pay LIBOR 0.25% ; ABC will pay 8.50%. c. ABC will pay LIBOR 1.25% ; DEF will pay 7.00%. d. ABC will pay LIBOR ; DEF will pay 7.00%. e. None of the options in this question are correct.