Your firm can borrow fixed at 8% and floating at Libor+100bps. You can also enter into a fixed-for-Libor swap where the fixed rate is 7.5%. What is the cheapest way for the firm to obtain fixed-rate financing?

Please explain your answer.

a) Borrow at a fixed rate and then swap into floating rate using the swap

b) Borrow at the fixed rate

c) Borrow floating rate and then swap into fixed rate using the swap