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CIMAPRA19-F03-1 Exam - Topic 5 Question 116 Discussion

A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay Libor+ 1% once a year.The company predicts that Liborwill be4% over the life of the 5 years.What is the impact of the swap on the company's annual interest costassuming that theLiborpredictioniscorrect?
C) Remain the same.
A) Increase by 1%.
B) Fall by 1%.
D) Fall by 2%.

CIMAPRA19-F03-1 Exam - Topic 5 Question 116 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 116
Topic #: 5
[All CIMAPRA19-F03-1 Questions]

A company is planning to issue a 5 year $100 million bond at a fixed rate of 6%.

It is also considering whether or not to enter into a 10 year $100 million swap to receive 5% fixed and pay Libor+ 1% once a year.

The company predicts that Liborwill be4% over the life of the 5 years.

What is the impact of the swap on the company's annual interest costassuming that theLiborpredictioniscorrect?

Show Suggested Answer Hide Answer
Suggested Answer: C

by Nathan at Nov 02, 2025, 01:18 AM

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Angella
3 months ago
I feel like it will remain the same. The fixed rate is stable.
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Rupert
4 months ago
Actually, it might fall by 2% if Libor stays at 4%.
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Ellsworth
4 months ago
I agree, since Libor is lower than the fixed rate.
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Eleonora
4 months ago
Definitely an increase in costs with that swap!
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Adelina
5 months ago
Wait, how does that even make sense?
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Lindsay
5 months ago
I think it will fall by 1%.
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Caprice
5 months ago
If Libor is 4%, the swap costs more!
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Jenifer
5 months ago
C is the way to go. The swap won't change the annual interest cost.
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Otis
5 months ago
D seems like the correct answer. The swap will reduce the annual interest cost by 2%.
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Paz
5 months ago
I think the answer is B. The swap will reduce the company's annual interest cost by 1%.
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Chantell
6 months ago
If they pay 5% fixed and receive Libor + 1%, it seems like they could end up paying less overall, but I need to double-check my calculations.
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Leoma
6 months ago
I practiced a similar question where the swap actually reduced costs, but I can't recall if it was by 1% or 2%. This one seems tricky!
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Alica
6 months ago
I think if the company pays Libor + 1%, and Libor is 4%, that would mean they're paying 5% total, which is the same as the fixed rate of the bond.
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Kanisha
6 months ago
I think the swap will fall by 1%.
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Marylyn
6 months ago
The bond has a fixed rate of 6%.
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Adelle
7 months ago
Haha, I bet the CFO is sweating over this one. Gotta love those LIBOR predictions!
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Sean
7 months ago
I remember that swaps can change the effective interest rate, but I'm not entirely sure how to calculate the net effect here.
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Xenia
7 months ago
Okay, I think I've got it. The bond is at 6%, and the swap is at 5% fixed plus Libor+1%, which with a 4% Libor prediction comes out to 6%. So the swap would result in the interest cost remaining the same, option C.
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Tracie
8 months ago
I think the key here is to look at the difference between the bond rate of 6% and the swap rate of 5% plus the Libor prediction of 4%. That would result in a 1% decrease in annual interest cost, so I'm going with option B.
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Katina
8 months ago
I'm a bit confused on how the swap would impact the interest cost. If the company is receiving 5% fixed and paying Libor+1%, and Libor is predicted to be 4%, wouldn't that mean the company's interest cost would actually fall by 1%?
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Rashad
8 months ago
Okay, let's see. The company is issuing a 5-year bond at 6% fixed, and considering a 10-year swap to receive 5% fixed and pay Libor+1%. If Libor is predicted to be 4%, I think that means the swap would result in a 1% increase in annual interest cost.
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Crista
8 months ago
Hmm, this looks like a tricky one. I'll need to carefully work through the details to figure out the impact of the swap.
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Ruth
3 months ago
Definitely need to crunch the numbers!
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Felicidad
3 months ago
I doubt it will remain the same.
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Isaiah
3 months ago
I think it might fall by 1%.
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Lindy
6 months ago
This swap could really change things up!
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Brinda
7 months ago
But what if Libor goes higher?
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