If a company with a fixed-rate debt of 11% enters into a swap and pays floating-rate debt of 8% and receives fixed-rate payments of 9%,its net cost of debt becomes:
A) 9%
B) 10%
C) 11%
D) 12%

Question

Quizplus · Accepted Answer

By entering into the swap, the company has converted its fixed-rate debt into a floating-rate debt with an interest rate of 8%. However, it is also receiving fixed-rate payments of 9% from the counterparty. 
Therefore, the net cost of debt can be calculated as follows:
Net cost of debt = Floating-rate debt - Fixed-rate payments received
= 8% - 9%
= -1%
Since the net cost of debt is negative, it means that the company is receiving a net payment from the swap counterparty, which reduces its overall cost of debt to 10%.

If a Company with a Fixed-Rate Debt of 11% Enters