Suppose that Phoenix bank seeks to reduce its interest rate risk in regards to its holdings of fixed-rate (12\%) mortgages via the use of interest rate Phoenix's mortgages, equaling 10%. In exchange, Phoenix receives variable payments from Padlock, equaling the LIBOR rate interbank lending rate for Eurobanks). Assume that Phoenix's cost of funds (or the rate owed on its deposits) is equal to the LIBOR rate, less 1%. The following table details the swap arrangement from the point of view of Phoenix bank for various possible values of If LIBOR is 8%, Phoenix's spread would be % if unhedged and % when hedged. Thus, hedging leads to a spread. If LIBOR is 11%, Phoenix's spread would be % if unhedged, and % when hedged. Thus, hedging leads to a spread when LIBOR is 11%