Dog's Can Borrow Money at Either a Fixed Rate of 8.25

question 21

Multiple Choice

Dog's can borrow money at either a fixed rate of 8.25 percent or a variable rate set at prime plus 0.5 percent.Cat's can borrow money at either a variable rate of prime plus 1 percent or a fixed rate of 8 percent.Dog's prefers a fixed rate and Cat's prefers a variable rate.Given this information,which one of the following statements is correct?

• A)After a swap with Cat's, Dog's could end up paying a fixed rate of 7.8 percent.
• B)Cat's should end up paying the prime rate if it agrees to an interest rate swap with Dog's.
• C)Both firms will profit if they swap an 8.15 percent fixed rate for a prime plus 0.75 percent variable rate.
• D)Dog's will end up paying no more than 7.75 percent as a fixed rate after a swap with Cat's.
• E)Dog's and Cat's cannot swap interest rates in a manner that will be profitable for both firms.

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Definitions:

Recall

The ability to retrieve and reproduce information from memory that was previously learned or experienced.

Semantic Memory

A type of long-term memory involving the ability to remember meanings, understandings, and other concept-based knowledge unrelated to personal experiences.

Circumference

The linear distance around the edge of a closed curve or circular object.

Psychodynamic Theory

A psychological perspective that emphasizes unconscious processes and the dynamic interplay between conscious and unconscious drives in shaping behavior and personality.