1. ) Suppose that Apple, Inc. has previously issued a bond that currently has 7 years left until maturity. The coupon rate of the bond is fixed at 12%. The CFO expects interest rates to remain on the low end of the spectrum for the foreseeable future. Therefore, he wants to effectively change Apples liability from fixed to floating. The most recently issued Treasury Note is yielding 3%.

He contacts several banks that quote the following:

Bank X: We will refinance your current debt at an all-in annual cost of LIBOR + 10%. This will include all the expenses of retiring the current debt and issuing new debt at a floating coupon.

Bank Y: We will offer you a LIBOR + 2% based, 25-40 interest rate swap.

Bank Z: We will offer you a PRIME+3% based, 60-75 interest rate swap. In addition, we have a basis swap available: LIBOR 1% for PRIME.

Which bank offers the CFO the best net borrowing position, assuming that he wants to effectively change his liability into a floating obligation?