Aldo's Hair Salons, Inc needs to borrower $50,000,000 for national expansion. Because this is a higher risk
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Aldo's Hair Salons, Inc needs to borrower $50,000,000 for national expansion. Because this is a higher risk company, Aldo would have to pay a floating rate of one year LIBOR plus 450 basis points. Since he is risk averse and wants to know his costs, you ask a consultant what can be done to get a fixed rate. You call Alexandra, old classmate who works in investment banking, and she advises you to get into a fixed/float swap. She can swap the one year LIBOR for 2.50% fixed. One year LIBOR is currently 1.00%
Calculate your annual net payment and effective interest rate.
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