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 + 1.5% and pays a fixed rate of 5%,what is the rate of interest on its borrowing?

A) 4.5%
B) 2.5%
C) 5.0%
D) 5.5%
E) 7.5%