Press F, a BBB-rated firm, desires a fixed rate, long-term loan. Press F presently has access...

 

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Press F, a BBB-rated firm, desires a fixed rate, long-term loan. Press F presently has access to floating interest rate funds at a margin of 2.25% p.a. over LIBOR. Its direct borrowing cost is 9.64% p.a. in the fixed rate bond market. In contrast, B.D. Energy, which prefers a floating rate loan, has access to fixed rate funds in the Eurodollar bond market at 6.22% p.a. and floating rate funds at LIBOR + 0.59% p.a. Suppose they enter into an interest rate swap contract, which a broker agrees to arrange for a fee of 0.45% p.a. and they agree to split the cost savings equally. Due to this arrangement, Press F will have achieved a cost of .p.a. for its fixed rate money and B.D. Energy will have achieved a cost of p.a. for its floating rate money? O a. 8.76%; LIBOR-0.29% O b. 8.98%; LIBOR-0.29% 1 с. 8.81%; LIBOR-0.07% O d. 8.81%; LIBOR+ 0.31% O e. 8.98%; LIBOR-0.07% Press F, a BBB-rated firm, desires a fixed rate, long-term loan. Press F presently has access to floating interest rate funds at a margin of 2.25% p.a. over LIBOR. Its direct borrowing cost is 9.64% p.a. in the fixed rate bond market. In contrast, B.D. Energy, which prefers a floating rate loan, has access to fixed rate funds in the Eurodollar bond market at 6.22% p.a. and floating rate funds at LIBOR + 0.59% p.a. Suppose they enter into an interest rate swap contract, which a broker agrees to arrange for a fee of 0.45% p.a. and they agree to split the cost savings equally. Due to this arrangement, Press F will have achieved a cost of .p.a. for its fixed rate money and B.D. Energy will have achieved a cost of p.a. for its floating rate money? O a. 8.76%; LIBOR-0.29% O b. 8.98%; LIBOR-0.29% 1 с. 8.81%; LIBOR-0.07% O d. 8.81%; LIBOR+ 0.31% O e. 8.98%; LIBOR-0.07%

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d 8 81 LIB OR 0 31 The swap contract will result in Press F hav... View the full answer