TABLE 15.2 Use the Information to Answer Following Question(s)

question 50

Multiple Choice

TABLE 15.2
Use the information to answer following question(s) .

-Refer to Table 15.2. Which of the following are viable rates for the swap agreements with Barclay's Bank by Shell and Merck?

• A) Shell borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Shell variable LIBOR + 1% while Shell pays Barclay's fixed 7 1/4%. At the same time, Merck borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Merck 6.00% while Merck pays Barclay's LIBOR plus 1/4%.
• B) Merck borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Merck variable LIBOR + 1% while Merck pays Barclay's fixed 7 1/4%. At the same time, Shell borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%.
• C) Merck borrows at a fixed rate of 7.5% and enters into a swap with Barclay's that pays Merck variable LIBOR + 1% while Merck pays Barclay's fixed 7 1/4%. At the same time, Shell borrows at the variable rate of LIBOR + 1/2% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%.
• D) Merck borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Merck a fixed rate of 7% while Merck pays Barclay's variable LIBOR +1%. At the same time, Shell borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%.

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