A Firm Can Borrow at a Floating Rate of LIBOR

Multiple Choice

A firm can borrow at a floating rate of LIBOR + 1% on short-term loans.If it swaps its short-term payments so that it receives LIBOR + 2% and pays a fixed rate of 3%,what is the rate of interest on its borrowing?

A) 5%
B) 4%
C) 6%
D) 2%
E) 3%