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Company A is considering two fixed interest long-term debt options: a) borrowing at a fixed rate of 3.5% or b) borrowing at a floating rate
Company A is considering two fixed interest long-term debt options: a) borrowing at a fixed rate of 3.5% or b) borrowing at a floating rate of Libor + 0.5% and entering a fixed-for-floating swap at 3.25% for Libor. Which option should the company take? How much interest would the company pay for option b) on a $10 million loan (and swap) at the end of the first year if Libor tuns out to be 2.9%?
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