Considering the effect of the interest rate swap

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Janutis Co. has just issued fixed rate debt at 12 percent. Yet it prefers to convert its financing to incur a floating rate on its debt. It engages in an interest rate swap in which it swaps variable rate payments of LIBOR plus 1 percent in exchange for payments of 12 percent. The interest rates are applied to an amount that represents the principal from its recent debt issue in order to determine the interest payments due at the end of each year for the next three years. Janutis Co. expects that the LIBOR will be 10 percent at the end of the first year, 9.5 percent at the end of the second year, and 9 percent at the end of the third year. Determine the financing rate that Janutis Co. expects to pay on its debt after considering the effect of the interest rate swap. Round your answers to one decimal place. Financing rate (end of year 1): % Financing rate (end of year 2): % Financing rate (end of year 3): %

Reference no: EM133305639

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