Company X, a lowrated firm, desires a fixedrate, longterm loan. X presently has access to floating interest rate funds at a margin of 1.25% over LIBOR. Its direct borrowing cost is 11% in the fixedrate bond market. In contrast, company Y, which prefers a floatingrate loan, has access to fixedrate funds in the Eurodollar bond market at 9% and floatingrate funds at LIBOR + 1/4%. Suppose they split the cost savings.

How much would Y pay for its floatingrate funds?

a) LIBOR .25%

b) LIBOR .50%

c) LIBOR

d) LIBOR + .5%