solution

1. Nixon Industries is currently paying a fixed rate 4% on a loan and desires a variable rate loan payment exposure. Refinancing is currently not available, so Nixon Industries decide to pursue an interest rate swap agreement. The swap terms are LIBOR for 2.5%. After the swap, are Nixon Industries’ payments variable or fixed?

Variable

Fixed

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2. Nixon Industries is currently paying a fixed rate 4% on a loan and desires a variable rate loan payment exposure. Refinancing is currently not available, so Nixon Industries decide to pursue an interest rate swap agreement. The swap terms are LIBOR for 2.5%. Which is the after-swap loan cost for Nixon Industries?

– 6.5%

– 1.5%

– (L + 1.5%)

– (L + 6.5%)

 
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