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Please explain how the swap is worked out here. I am not getting how the have to pay 11%
On the A rated notes they are paying Libor + 1.5%.
The question says that they propose a fixed for variable interest rate swap exchanging Libor for 9.5%. This means that when swapping they will pay 9.5% to the other party and receive Libor from the other party.
So the end result of paying L + 1.5%, paying 9.5%, and receiving L is:
L + 1.5% + 9.5% – L = 11%.
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