The Smith Co

question 77

Multiple Choice

The Smith Co. can borrow money at a fixed rate of 9.25% or a variable rate set at prime plus 1.5% The Tanner Co. can borrow money at a variable rate of prime plus 1% or a fixed rate of 9% The Smith Co. prefers a fixed rate and the Tanner Co. prefers a variable rate. Given this information, which one of the following statements is correct?

• A) After swapping interest rates with the Tanner Co., the Smith Co. will end up paying about 1.25% over prime on their borrowed funds.
• B) Both companies can profit in a swap which will allow the Smith Co. to pay between 9 and 9.25% as a fixed rate.
• C) The Tanner Co. will end up with a fixed rate of 9.25%
• D) The Tanner Co. has the best chance of profiting if they do an interest rate swap with the Smith Co.
• E) There are no terms under which the Smith Co. and the Tanner Co. can swap interest rates and each realizes a profit.

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Definitions:

Cognitive Therapy

A form of psychological treatment that focuses on changing unhelpful or dysfunctional thoughts, beliefs, attitudes, and behaviors, aiming to improve emotional regulation and develop personal coping strategies.

Psychoanalysis

A therapeutic approach and theory of psychology developed by Sigmund Freud, focusing on unconscious motives and conflicts.

Token Economy

A behavioral modification technique where desired behaviors are reinforced with tokens that can be exchanged for rewards.

Self-defeating Ideas

Thoughts or beliefs that undermine a person's success, happiness, or ability to meet their goals.