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

question 5

Multiple Choice

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

-Refer to Table 15.2. Which of the following swap agreements could work for Shell and Merck with Barclay's as the facilitating bank?

• A) Merck borrows at a fixed rate of 6% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's. Shell borrows money at a variable rate of LIBOR + 1% and then enters into "receive variable, pay fixed" interest rate swap with Barclay's.
• B) Shell borrows at a fixed rate of 6% and then enters into a "receive variable, pay fixed" interest rate swap with Barclay's. Merck borrows money at a variable rate of LIBOR + 1% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's.
• C) Shell borrows at a fixed rate of 6% and then enters into "receive fixed, pay floating" interest rate swap with Barclay's. Merck borrows money at a variable rate of LIBOR + 1% and then enters into "receive variable, pay fixed" interest rate swap with Barclay's.
• D) None of the above would satisfy both Shell and Merck.

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Definitions:

Bond Payable

A long-term liability account that represents a promise to pay a series of payments over time and repay the principal amount at maturity.

Bondholder

An investor or entity that owns bonds issued by corporations or governments, entitling them to receive the bond's face value at maturity, as well as periodic interest payments.

Evidence

Information or documentation used to support or verify entries in the accounting records or financial statements.

Unsecured Bonds

Bonds issued without collateral, relying solely on the issuer's creditworthiness.