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Company X and Company Y have been offered the following rates Fixed Rate Floating Rate Company X 3.9% 3-month LIBOR plus 10bp Company Y 4.7%

Company X and Company Y have been offered the following rates

Fixed Rate

Floating Rate

Company X

3.9%

3-month LIBOR plus 10bp

Company Y

4.7%

3-month LIBOR plus 50 bp

Suppose that Company X borrows fixed and company Y borrows floating. If they enter into a swap with each other where the apparent benefits are shared equally, what is company Xs effective borrowing rate?

Select one:

3-month LIBOR10bp

3.5%

3.7%

3-month LIBOR minus 30bp

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