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V has a floating rate loan that is wishes to be replace with a fixed rate.The cost of the existing loan is LIBOR+3%. V would
have to pay a fixed rate of 7% on a fixed rate loan. It would be LIBO+1% of a variable loan and 8% on a fixed rate.
The bank will requre 10% of the savings from the swap and the counterparty will shate the remaining saving equally.
Calculate V’s effective rate of interest from this swap arrangement.V would pay LIBOR+1%
V would pay 5.2%
V would pay 5.5%
V would pay 5.85%
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