Please show your work.

$6.$ Company H is a high credit$-$worthy borrower. Company L is a low credit$-$worthy borrower. Their preference, status, and borrowing opportunities are shown below:

Company Preferred Rate Currently Borrowing at Fixed Rate Borrowing Cost Floating Rate Borrowing Cost

H Floating Fixed $3\mathrm{.}25\%$ PRIME

L Fixed Floating $6\mathrm{.}00\%$ PRIME $+0\mathrm{.}50\%$

Suppose the OSD is equally shared between H$,$ L and the swap dealer. If the swap dealer pays PRIME to L$,$ what will the swap dealer receive from L$?$

Prime $-0\mathrm{.}75\%$

$4\mathrm{.}00\%$

Prime $+0\mathrm{.}25\%$

Correct Answer

$4\mathrm{.}75\%$