Sahali Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 9%. Sahali Trading Company then enters into an interest rate swap where it will pay LIBOR and receive a fixed 8% on a notional principal of $100 million. After all these transactions are considered, Sahali's cost of funds is __________.
A. 17%
B. LIBOR
C. LIBOR + 1%
D. LIBOR - 1%
C. LIBOR + 1%
Before the swap Sahali pays 9%. After the swap Sahali receives 8% minus LIBOR. The cost is of the swap is 9% - (8 - LIBOR) = LIBOR + 1%
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