Rosie's Can Borrow Money at a Fixed Rate of 9

question 30

Multiple Choice

Rosie's can borrow money at a fixed rate of 9.4% or a variable rate set at prime plus 1.25% Ed's can borrow money at a variable rate of prime plus 1% or a fixed rate of 8.9% Rosie's prefers a fixed rate and Ed's prefers a variable rate. Given this information, which one of the following statements is correct?

• A) After swapping interest rates with the Ed's, Rosie's will end up paying about 1.13% over prime.
• B) Both companies can profit in a swap which will allow Rosie's to pay a 9% fixed rate.
• C) Ed's will end up with a fixed rate around 9.15%
• D) Ed's has the best chance of profiting if they do an interest rate swap with Rosie's.
• E) There are no terms under which Rosie's and Ed's can swap interest rates.

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Definitions:

Extinction

In psychology, the gradual weakening and eventual disappearance of a conditioned response when the conditioned stimulus is no longer paired with an unconditioned stimulus.

Conditioned Fear

A learned response to a stimulus that was previously neutral but has been paired with an aversive event.

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Auditory stimuli that are of high decibel level, potentially causing hearing damage or stress.

Toy Dog

A term used to describe small dog breeds that are often kept as companions or pets, characterized by their compact size and playful nature.