Question

Matt is the CEO of a large corporation and is considering two fixed interest long-term debt...

Matt is the CEO of a large corporation and is considering two fixed interest long-term debt options – (1) borrowing at a fixed rate of 5.5% or (2) borrowing at a floating rate of Libor + 0.3% and entering a fixed-for-floating swap at 5.25% for Libor. Which option should the company take? How much interest would the company pay for option (2) on a $20 million loan (and swap) at the end of the first year if Libor tuns out to be 4.9%?

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