VVV has a floating rate loan that it wishes to replace with a fixed rate. The cost of the existing loan is the risk-free rate + 3%. VW would have to pay a fixed rate of 7% on a fixed rate loan VVVs bank has found a potential counterparty for a swap arrangement.

The counterparty wishes to raise a variable rate loan It would pay the risk-free rate +1 % on a variable rate loan and 8% on a fixed rate.

The bank will require 10% of the savings from the swap and WV and the counterparty will share the remaining saving equally.

Calculate VWs effective rate of interest from this swap arrangement.