A borrower can borrow $10 million at a fixed-rate loan at 7.5% for six years, or a floating-rate loan at LIBOR plus 2%. Assume the current LIBOR rate is 7%. After some consideration, he chooses the fixed rate loan. Did he make the right decision if the LIBOR rates over the next five years were 6.5%, 6.0%, 5.5%, 5.0% and 4.5%?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter19: Lease And Intermediate-term Financing
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A borrower can borrow $10 million at a fixed-rate loan at 7.5% for six years, or a floating-rate loan at LIBOR plus 2%. Assume the current LIBOR rate is 7%. After some consideration, he chooses the fixed rate loan. Did he make the right decision if the LIBOR rates over the next five years were 6.5%, 6.0%, 5.5%, 5.0% and 4.5%?

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