On $10 Million of Loans, Firm a Is Paying a Fixed

Multiple Choice

On $10 million of loans, Firm A is paying a fixed $700,000 in interest payments while Firm B is paying LIBOR plus 50 basis points. The current LIBOR rate is 6.25 percent. Firms A and B have agreed to swap interest payments. How much will be paid to which firm this year?

A) A pays $750,000 to Firm B.
B) B pays $25,000 to Firm A.
C) B pays $50,000 to Firm A.
D) A pays $25,000 to Firm B.