In determining the total cost of debt for an LBO transaction, you come across a term loan that defines the total interest rate as based on a base rate plus a spread. The stated spread is 3%, the prime rate is 4.5%, and the SOFR rate is 2.5%.

If the base rate is defined as the higher of the prime rate or SOFR, which of the following would be the accurate total interest rate for the term loan?

• 5.5%
• 6.5%
• 7.5%
• 8.5%