# Bond Swap **URL:** \ **Category:** CAS Exam 9\ **Created:** [November 17, 2020, 10:19pm UTC](https://community.goactuary.com/t/bond-swap/1185 "2020-11-17T22:19:02Z")\ **Posts on this page:** 3\ **Page:** 1
**Author:** ![Despicable\_May](https://community.goactuary.com/user_avatar/community.goactuary.com/despicable_may/32/837_2.png) [@Despicable\_May](https://community.goactuary.com/u/Despicable_May)\ **Post date:** [November 17, 2020, 10:19pm UTC](https://community.goactuary.com/t/bond-swap/1185/1 "2020-11-17T22:19:02Z")
CC Question B-61 same as the question in BKM 23 " Desert Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 7%. The firm then enters into an interest rate swap where it pays LIBOR and receives a fixed 6% on notional principal of $100 million. What is the firm’s overall cost of funds? " Could someone help me explain why the net cost is LIBOR +1 % to the firm? My thinking is, the firm issuing at 7%, so it’s paying 7% which should be negative; then it would get - LIBOR + 6% from SWAP; so the net flow to the firm should be -7% - LIBOR + 6% = LIBOR -1%. Feeling like I’m making a big concept mistake?! ---
**Author:** ![gandalf](https://community.goactuary.com/user_avatar/community.goactuary.com/gandalf/32/565_2.png) [@gandalf](https://community.goactuary.com/u/gandalf)\ **Post date:** [November 17, 2020, 10:23pm UTC](https://community.goactuary.com/t/bond-swap/1185/2 "2020-11-17T22:23:45Z")
> [@Despicable\_May](#): > > -7% - LIBOR + 6% = LIBOR -1% -7% - LIBOR + 6% = - LIBOR - 1% = - (LIBOR + 1%) ---
**Author:** ![Despicable\_May](https://community.goactuary.com/user_avatar/community.goactuary.com/despicable_may/32/837_2.png) [@Despicable\_May](https://community.goactuary.com/u/Despicable_May)\ **Post date:** [November 17, 2020, 10:25pm UTC](https://community.goactuary.com/t/bond-swap/1185/3 "2020-11-17T22:25:33Z")
Thank you SO MUCH!!!