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A corporation has issued a $16 million issue of floating-rate bonds on which it pays an interest rate 0.8% over the LIBOR rate. The bonds are selling at par value. The firm is worried that rates are about to rise, and it would like to lock in a fixed interest rate on its borrowings. The firm sees that dealers in the swap market are offering swaps of LIBOR for 5%. A swap arrangement converts the firm’s borrowings to a synthetic fixed-rate loan. What interest rate will it pay on that synthetic fixed-rate loan?

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Financial Management, Finance

Category:- Financial Management
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