Answer 20-21 using the following information. The numbers are annualized borrowing rates (%).

Firm Fixed FRN

A 15 Libor+2%

B 12 Libor+1%

Suppose, after some negotiations, they agreed to the swap on a mutually beneficial term and decided to split the savings from the swap equally. After 1 yr, A declared bankruptcy and had to default on the swap. Which of the following statements is correct?

		B's net borrowing cost is Libor
		B will continue to pay 14% fixed rate and receive Libor+1% from the dealer
		B's net borrowing cost is Libor+2%
		A will continue to pay 14% to bondholders and Libor+1% to dealer