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H Company has a fixed rate load at 10.0%, but wishes to swap to variable. It can borrow at LIBOR 8%.
The bank is currently quoting swap rates of 3.1% (bid) and 3.5% (ask).
What net rate will H Company pay if it enters into the swap?
Suggested Answer: C
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12 comments · newest first
GL
Glendora
3 days ago
I’m leaning towards C) LIBOR +6.9%. It seems reasonable.
PH
Phillip
8 days ago
I feel like it’s B) LIBOR +8%. The fixed rate is too high.
ME
Merissa
13 days ago
This question is tricky! I think the answer is A) LIBOR +6.5%.
SH
Sharita
18 days ago
Totally agree, LIBOR +6.5% makes sense with those swap rates!
LA
Larae
23 days ago
Wait, how does that add up? Seems off to me.
EL
Elin
28 days ago
I think they'll end up paying LIBOR +6.5%.
LA
Laurena
1 month ago
They can borrow at LIBOR 8%, so that's a good start!
LO
Louvenia
1 month ago
H Company has a fixed rate of 10% and wants to swap to variable.
BE
Bethanie
1 month ago
I feel like I might be mixing up the bid and ask rates. Should we use the bid rate for H Company since they are entering the swap?
LA
Lashon
2 months ago
This seems similar to a practice question where we calculated the effective rate after a swap. I think the fixed rate minus the swap rate is key here.
BE
Berry
2 months ago
I'm not entirely sure, but I think we might need to add the swap rate to LIBOR to find the net rate.
MA
Mauricio
2 months ago
I remember that when swapping from fixed to variable, we need to consider the difference between the fixed rate and the swap rate.