Three years ago, ABC AG arranged a five-year fixed borrowing facility at 5%. At that time the company correctly predicted that interest rates were about to fall, and decided to receive fixed on a five year-year swap at 4%.Today, interest rates are lower and ABC AG will enter into a 2 year swap to lock in these lower rates.
Current swap rates are:
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Maturity Bid (%) Offer (%)
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2 year 1.30 1.40
3 year 1.50 1.60
4 year 1.90 2.00
5 year 2.10 2.20
problem:
a) What would be the company's net borrowing rate