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Ripping Ltr has 50m fixed rate loan on which it pays int at the rate of 7.8% per year. The company would like to undertake a swap agreement with a bank to exchange the fixed rate commitment for a floating rate Commitment. A swap bank is prepared to pay a fix rate of int of 7.5% per year and to receive LIBOR in return. LIBOR during the first year was 7.1%
What is the effective interest rate for the company for the first year of the swap agreement.
Answer is 7.4%
I don’t understand pls show me the working.
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