Firm a Can Borrow at 4% Fixed or at Libor

question 21

Multiple Choice

Firm A can borrow at 4% fixed or at Libor flat in the fixed and floating rate markets,respectively.Firm B can borrow at 7% fixed or Libor plus 100 bps in the fixed and floating rate markets,respectively.A wants to borrow floating and B wants to borrow fixed. If A borrows fixed and B borrows floating and they enter into a fixed-for-Libor interest-rate swap in which A pays Libor flat,what is the range of fixed rates for B that enables each firm to improve its financing costs (compared to accessing financing in the market directly) ?

• A)4%-7%
• B)4%-6%
• C)5%-6%
• D)5%-7%

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Definitions:

Emotions

Complex psychological states that involve three distinct components: a subjective experience, a physiological response, and a behavioral or expressive response.

Empathy

The ability to understand and share the feelings of another person.

Social Interaction

The process by which individuals act and react in relation to others, forming the basis of social relationships and society.

Instrumental Communication

Communication that is directed toward completion of tasks or the achievement of specific objectives.