You issue a 3-year fixed-rate US dollar bond at 7% (annual) with a bullet maturity. After all costs, you receive 99.00 from the issue. You swap the bond to floating-rate dollars. You arrange the swap so that your net cashflows from the swapped bond issue give you a par amount at the beginning, a regular LIBOR-related cost based on this par amount for 3 years, and the same par amount to be repaid at maturity. The current par swap rate for 3 years is 7.5% (annual, 30/360 basis) against LIBOR (semi-annual, ACT/360). Assuming that this same rate of 7.5% (annual) can be used as a rate of discount throughout, what all-in floating-rate cost can you achieve above or below LIBOR?
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