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.It swaps its short-term payments so that it receives LIBOR + 1.5% and pays a fixed rate of 5%.If the notional principal is $25 million,what is the amount the firm pays under the swap?

A) $125,000
B) $31,250
C) $62,500
D) $93,750
E) $125,500