Company A can borrow money at a fixed rate of 9.5% or a variable rate set at prime plus 0.5% Company B can borrow money at a variable rate of prime plus 1% or a fixed rate of 9% Company A
Prefers a fixed rate and company B prefers a variable rate. Given this information, which one of the
Following statements is correct?
A) Company A can swap with B and pay a fixed rate of 8.75%
B) If Company A swaps with B, Company A will pay a fixed rate between 9 and 9.5%
C) If Company B swaps with A, Company B must pay a fixed rate of 9.5%
D) Company B can swap with A such that Company B pays the variable prime rate.
E) There are no terms under which both Company A and Company B can swap interest rates and both realize a profit.
Correct Answer:
Verified
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