Company A issues floating rate debt at LIBOR + 1 percent and Company B can issues fixed rate debt at 9.4 percent. They engage in the following swap: A will make a fixed 7.95 percent payment to B, and B will make a floating rate payment equal to LIBOR to A. What are the resulting net payments of A and B?

Select one:

a. A pays a fixed rate of 9 percent, B pays LIBOR + 1.5 percent.

b. A pays a fixed rate of 8.95 percent, B pays LIBOR + 1.45 percent.

c. A pays LIBOR plus 1 percent, B pays a fixed rate of 9.4 percent.

d. A pays a fixed rate of 7.95 percent, B pays LIBOR.

e. None of the answers above is correct.