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Company A can borrow at either an 8.5% fixed rate or a floating rate of prime + 1.75% Company B can borrow at either a floating rate of prime + 1.25% or a fixed rate of 8.65% Company A prefers a floating rate and Company B prefers a fixed rate. Which one of the following terms would be acceptable to both Company A and B if they opted to enter an interest rate swap?
Dividend Yield
A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
Constant Growth
Constant growth refers to a situation where a quantity or system experiences growth at a steady and unvarying rate over a period of time, often used in dividend growth models.
Required Rate of Return
The required rate of return is the minimum expected return an investor demands for holding a risky investment, compensating for the risk taken.
Beta
A measure of a stock's volatility in relation to the overall market, used in the capital asset pricing model to determine expected returns.
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