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:

Unequal-variances Test

A statistical method used when comparing two groups or samples that are assumed to have different variances, to evaluate if their means are significantly different.

Independent Populations

Populations that are not related or affected by each other, allowing for assumptions of independence in statistical tests.

T-test

A statistical test used to compare the means of two groups to determine if there is a significant difference between them.

Degrees of Freedom

The count of independent figures or measures that can be designated to a statistical distribution.