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Flatter Inc can borrow at a fixed rate by issuing seven-year bonds at 9.30% or can borrow at a variable rate of LIBOR + 125 basis points. It has been quoted rates of 8.35% - 8.40% for a seven-year plain vanilla swap. Flatter wants to borrow at a floating rate of interest and is aware of the credit arbitrage opportunity with a swap. How much would it save by borrowing fixed and arranging a swap, compared with issuing bonds? Its net effective interest cost would be lower by ________ basis points per annum. |