Plymouth plc wishes to borrow 80 million at a fixed interest rate to fund a project. The firm would

pay a fixed rate of 6% p.a., but can alternatively borrow with a floating rate LIBOR+3% p.a. Truro plc

is currently looking to borrow 80 million for a project with a floating interest rate. The company would

pay a floating rate of LIBOR+2.4% p.a., but can alternatively borrow with a fixed rate of 5% p.a. The

two companies decide to enter a swap in which the benefit is shared equally. In the agreement,

Plymouth plcs swap payment to Truro plc is to be 5% p.a. Which of the following statements about

the swap agreement is most likely to be true?

A

Plymouth plc receives LIBOR+1.2% p.a. from Truro plc

B

Truro plcs net borrowing cost is LIBOR+3.2% p.a.

C

Truro plc borrows 80m loan from its bank at a floating rate of LIBOR+3% p.a.

D

Plymouth plcs net borrowing cost is 5.8% p.a.

E

Each company can save 0.4% p.a., benefiting equally from the swap