Sahali Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 9%. Sahali Trading Company then enters into an interest rate swap where it will pay LIBOR and receive a fixed 8% on a notional principal of $100 million. After all these transactions are considered, Sahali's cost of funds is ________.

Question

Quizplus · Accepted Answer

Before the swap Sahali pays 9%. After the swap Sahali receives 8% minus LIBOR. The cost is of the swap is 9% − (8 − LIBOR) = LIBOR + 1%

Sahali Trading Company Has Issued $100 Million Worth of Long-Term