Company a Can Issue Floating-Rate Debt at LIBOR + 1%,and

question 3

Multiple Choice

Company A can issue floating-rate debt at LIBOR + 1%,and it can issue fixed rate debt at 9%.Company B can issue floating-rate debt at LIBOR + 1.5%,and it can issue fixed-rate debt at 9.4%.Suppose A issues floating-rate debt and B issues fixed-rate debt,after which they engage in the following swap: A will make a fixed 7.95% payment to B,and B will make a floating-rate payment equal to LIBOR to A.What are the resulting net payments of A and B?

• A)A pays a fixed rate of 9%; B pays LIBOR + 1.5%.
• B)A pays a fixed rate of 8.95%; B pays LIBOR + 1.45%.
• C)A pays LIBOR plus 1%; B pays a fixed rate of 9.4%.
• D)A pays a fixed rate of 7.95%; B pays LIBOR.

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Definitions:

Deductive Reasoning

A logical process in which a conclusion follows necessarily from given premises; moving from general statements to specific conclusions.

Conventional Level

The second level in Kohlberg's theory of moral development, where individuals make moral decisions based on conforming to social rules to ensure positive relationships and societal order.

Social Rules

Norms established by a society to dictate acceptable behavior, facilitate interaction, and maintain order among its members.

Preoperational Stage

A stage in Jean Piaget's theory of cognitive development (roughly ages 2 to 7) where children begin to engage in symbolic play and struggle with logic and taking the perspective of others.