What is the net effective borrowing rate for intel

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Reference no: EM132040343

Suppose that Microsoft borrowed $100 million for 3 years at LIBOR+0.1% (i.e. Microsoft has a floating rate liability). Microsoft is concerned about the interest rate going up, so they want to convert this into a fixed rate liability. At the same time, Intel has a similar loan, but borrowed at a fixed rate of 5.1%. Intel wants to convert this into a floating rate liability. Assume that both companies enter the same swap agreement. Microsoft agrees to pay Intel a fixed rate of 4.9%, while Intel agrees to pay to Microsoft LIBOR-0.1% through the swap.

What is the net fixed rate that Microsoft effectively ends up paying? What is the net effective borrowing rate for Intel?

Please show all work and final answer

Reference no: EM132040343

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