You have a USD 10 million borrowing on which you are paying 8.9% fixed (annual money market basis) and which has exactly 5 years left to run. All the principal will be repaid at maturity. The current 5-year dollar interest rate swap spread is quoted to you as 80/90 over treasuries. The current 5-year treasury yield is 9.0%. (US treasuries are quoted on a semi-annual bond basis.) You believe that interest rates are going to fall and wish to swap the borrowing from fixed to floating. Without discounting all the cashflows precisely, what will the resulting net LIBOR-related cost of the swapped borrowing be approximately?
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