A Firm Can Borrow at a Floating Rate of LIBOR

Multiple Choice

A firm can borrow at a floating rate of LIBOR + 2.5% on short-term loans.It swaps its short-term payments so that it receives LIBOR + 1.25% and pays a fixed rate of 3.75%.If the notional principal is $100 million,what is the amount the firm pays under the swap?

A) $1.25 million
B) $2.5 million
C) $3.75 million
D) $5 million
E) $7.5 million