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Sir how did we assume that Keshi co. was looking to go for a fixed rate interest? Nowhere has it been directly stated. I mean they suggest that 5.5-.46=5.04% will be the effective rate for Keshi. But I in my answer was suggesting that L+.4-.46=L-.06 or 5.04% both are available options, once Keshi swaps.
Which apparently is not wholly correct given the examiner has written that with certainty the effective rate for Keshi will be 5.04%.
The question hints that they would prefer fixed rate borrowing because Keshi feels that there is increasing uncertainty in the. markets.
In addition, a swap can only benefit both parties one way round, so if you are ever unsure in an exam questions then try both ways and see which way does make a saving to both parties – it only takes a few seconds to check.
Taking a bow sir! This explanation makes it crystal clear! thank you so much!!
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