Free trial classes on FOREX (SFM-CA Final): by CA Nagendra

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Yes Bank is seeking fixed rate funding.It is able to finance at a cost of six months LIBOR + 0.25% for Rs.2 crores for 5 Years. The bank is able to swap into a fixed rate at 7.5% versus six month LIBOR treating six months as exactly half a year.

(a)  What will be the "all in cost" funds to Yes Bank?

(b) Another possibility being considered is the issue of a hybrid instrument which pays 7.5% for 1st three years and LIBOR-0.25% for remaining 2 years.

Given a 3 year swap rate of 8%, suggest the method by which the bank should achieve fixed rate funding.