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Plymouth plc wishes to borrow £80 million at a fixed interest rate to fund a project. The firm would pay a fixed rate of 6% p.a., but can alternatively borrow with a floating rate LIBOR+3% p.a. Truro plc is currently looking to borrow £80 million for a project with a floating interest rate. The company would pay a floating rate of LIBOR+2.4% p.a., but can alternatively borrow with a fixed rate of 5% p.a. The two companies decide to enter a swap in which the benefit is shared equally. In the agreement, Plymouth plc's swap payment to Truro plc is to be 5% p.a. Which of the following statements about the swap agreement is most likely to be true? A Plymouth plc receives LIBOR+1.2% p.a. from Truro plc Truro plc's net borrowing cost is LIBOR+3.2% p.a. Truro plc borrows £80m loan from its bank at a floating rate of LIBOR+3% p.a. D в Plymouth plc's net borrowing cost is 5.8% p.a. Each company can save 0.4% p.a., benefiting equally from the swap E

Plymouth plc wishes to borrow £80 million at a fixed interest rate to fund a project. The firm would pay a fixed rate of 6% p.a., but can alternatively borrow with a floating rate LIBOR+3% p.a. Truro plc is currently looking to borrow £80 million for a project with a floating interest rate. The company would pay a floating rate of LIBOR+2.4% p.a., but can alternatively borrow with a fixed rate of 5% p.a. The two companies decide to enter a swap in which the benefit is shared equally. In the agreement, Plymouth plc's swap payment to Truro plc is to be 5% p.a. Which of the following statements about the swap agreement is most likely to be true? A Plymouth plc receives LIBOR+1.2% p.a. from Truro plc Truro plc's net borrowing cost is LIBOR+3.2% p.a. Truro plc borrows £80m loan from its bank at a floating rate of LIBOR+3% p.a. D в Plymouth plc's net borrowing cost is 5.8% p.a. Each company can save 0.4% p.a., benefiting equally from the swap E

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Plymouth plc wishes to borrow £80 million at a fixed interest rate to fund a project. The firm would pay a fixed rate of 6% p.a., but can alternatively borrow with a floating rate LIBOR+3% p.a. Truro plc is currently looking to borrow £80 million for a project with a floating interest rate. The company would pay a floating rate of LIBOR+2.4% p.a., but can alternatively borrow with a fixed rate of 5% p.a. The two companies decide to enter a swap in which the benefit is shared equally. In the agreement, Plymouth plc's swap payment to Truro plc is to be 5% p.a. Which of the following statements about the swap agreement is most likely to be true? A Plymouth plc receives LIBOR+1.2% p.a. from Truro plc Truro plc's net borrowing cost is LIBÓR+3.2% p.a. C Truro plc borrows £80m loan from its bank at a floating rate of LIBOR+3% p.a. D в Plymouth plc's net borrowing cost is 5.8% p.a. Each company can save 0.4% p.a., benefiting equally from the swap E
Transcribed Image Text:Plymouth plc wishes to borrow £80 million at a fixed interest rate to fund a project. The firm would pay a fixed rate of 6% p.a., but can alternatively borrow with a floating rate LIBOR+3% p.a. Truro plc is currently looking to borrow £80 million for a project with a floating interest rate. The company would pay a floating rate of LIBOR+2.4% p.a., but can alternatively borrow with a fixed rate of 5% p.a. The two companies decide to enter a swap in which the benefit is shared equally. In the agreement, Plymouth plc's swap payment to Truro plc is to be 5% p.a. Which of the following statements about the swap agreement is most likely to be true? A Plymouth plc receives LIBOR+1.2% p.a. from Truro plc Truro plc's net borrowing cost is LIBÓR+3.2% p.a. C Truro plc borrows £80m loan from its bank at a floating rate of LIBOR+3% p.a. D в Plymouth plc's net borrowing cost is 5.8% p.a. Each company can save 0.4% p.a., benefiting equally from the swap E
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