Firm A is paying $750,000 in interest payments a year while Firm B is paying LIBOR plus 75 basis points on $10,000,000 loans. The current LIBOR rate is 6.5%. Firm A and B have agreed to swap interest payments, how much will paid to which Firm this year?
A) $750,000 to Firm B.
B) $725,000 to Firm A.
C) $25,000 to Firm A.
D) $25,000 to Firm B.

Question

Quizplus · Accepted Answer

Firm B's interest payment is $10,000,000 * (6.5% + 0.75%) = $725,000. Firm A pays $750,000. The difference is $25,000, which Firm A will pay to Firm B.

Firm a Is Paying $750,000 in Interest Payments a Year