In the market, Firm X borrows at 6.5% p.a. and Firm Y borrows at LIBOR + 1% p.a. They engage in a swap where Firm X receives 6% p.a. and Firm Y receives LIBOR. Assume that there is no dealer and that all principals are equal, their effective net borrowing rates are:

Select one:

a. X pays a fixed rate of 5.5%, Y pays LIBOR + 0.5 %.

b. Y pays a fixed rate of 6.0%, X pays LIBOR + 0.5 %.

c. Y pays a fixed rate of 7.0%, X pays LIBOR + 0.5 %.

d. X pays a fixed rate of 5.5%, Y pays LIBOR + 1.5 %.

e. None of the answers above is correct.