A Firm Can Borrow at Fixed AA Rates Minus 1

question 11

Multiple Choice

A firm can borrow at fixed AA rates minus 1% for long-term loans.If it swaps its long-term payments so that it receives the fixed AA rate and pays a AA floating rate,what is the rate of interest on its borrowing if the floating rate is r%?

• A)r + 1%
• B)r - 1%
• C)r%
• D)1%
• E)2%

---

Definitions:

Prices

The cost of acquiring a product or service, influenced by elements like market supply and consumer demand.

Opportunity Costs

Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.

Gain From Trade

The benefit or advantage resulting from the exchange of goods or services between parties.

International Trade

The movement of goods and services across the demarcations of international borders or territories.