Firms effective borrowing cost with the interest rate swap

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Reference no: EM131027213

ABC Corp. has a floating rate debt for which the firm pays an interest rate of LIBOR + 1%. The firm enters into an interest rate swap on the same notional principal as the floating rate debt. In the swap, the firm receives LIBOR and pays 6.5%. What is the firm’s effective borrowing cost with the interest rate swap?

a. 5.5%

b. 6.5%

c. 7.5%

d. LIBOR+0.5%

e. LIBOR-0.5%

Reference no: EM131027213

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