Murray's Can Borrow Money at a Fixed Rate of 10

question 10

Multiple Choice

Murray's can borrow money at a fixed rate of 10.5 percent or a variable rate set at prime plus 2.25 percent.Fred's can borrow money at a variable rate of prime plus 1.5 percent or a fixed rate of 12 percent.Murray's prefers a variable rate and Fred's prefers a fixed rate.Given this information,which one of the following statements is correct?

• A)After swapping interest rates with Fred's, Murray's may be able to pay prime plus 2 percent.
• B)Both companies can profit in a swap which will allow Murray's to pay a variable rate of prime plus one percent.
• C)Fred's will end up with a fixed rate of 10 percent.
• D)Fred's has the best chance of profiting if it does an interest rate swap with Murray's.
• E)There are no terms under which Murray's and Fred's can swap interest rates.

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Definitions:

Reservation

The act of holding or booking a place, item, or service for future use, or a doubt or objection raised regarding a particular point or proposal.

Delimitation

The process of establishing boundaries or limits, often used in research to define the scope of a study.

Inductive Organization

A method of structuring information that starts with specific instances or evidence and builds toward a general conclusion.

Subjective Nature

The characteristic of being based on or influenced by personal feelings, tastes, or opinions rather than external facts.