14. Interest Rate Swap. Janutis Co. has just issued ﬁxed rate debt at 10 percent. Yet, it prefers to con- vert its ﬁnancing to incur a ﬂoating rate on its debt. It engages in an interest rate swap in which it swaps variable rate payments of LIBOR plus 1 percent in exchange for payments of 10 percent. The inter-
est rates are applied to an amount that represents the principal from its recent debt issue in order to determine the interest payments due at the end of each year for the next 3 years. Janutis Co. expects that the LIBOR will be 9 percent at the end of the ﬁrst year, 8.5 percent at the end of the second year, and 7 percent at the end of the third year. Deter- mine the ﬁnancing rate that Janutis Co. expects to pay on its debt after considering the effect of the interest rate swap.