A Credit Union Has Funded 10 Percent Fixed-Rate Assets with Variable-Rate

Multiple Choice

A credit union has funded 10 percent fixed-rate assets with variable-rate liabilities at LIBOR + 2 (L + 2) percent. A bank has funded variable-rate assets with fixed-rate liabilities at 6 percent. The bank's variable-rate assets earn LIBOR + 1 (L + 1) percent. The credit union and the bank have reached agreement on an interest-rate swap with the fixed-rate swap payment at 6 percent and the variable-rate swap payment at LIBOR. What will be the net after-swap cost of funds for the bank if the cash market liabilities are included in the analysis?

A) Variable-rate at LIBOR.
B) Fixed-rate at 8 percent.
C) Fixed-rate at 1 percent.
D) Fixed-rate at 2 percent.
E) None of these.