Question $1$

Firm A can borrow at $5\%$ fixed or at Libor plus $0\mathrm{.}5\%$ in the fixed and floating rate markets, respectively. Firm B can

borrow at $8\%$ fixed or Libor plus $1\mathrm{.}5\%$ in the fixed and floating rate markets, respectively. A wants to borrow floating and

$B$ wants to borrow fixed. If A borrows fixed and $B$ borrows floating and they enter into a fixed$-$for$-$Libor interest$-$rate

swap in which A pays Libor flat, what swap rate would you suggest to the two firms if you were an unbiased advisor?

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$6\%$

$5\%$

$5\mathrm{.}50\%$

$5,25\%$