1. ABC Corp can borrow at a floating rate of LIBOR + 2.975% or at a fixed rate of 9.35%, but prefers to take out a floating rate loan. DEF Inc can borrow at a floating rate of LIBOR + 1.275% or at a fixed rate of 8.5%, but prefers to take out a fixed rate loan.

Suppose ABC Corp and DEF Inc enter into an interest rate swap agreement and decide to split the cost savings at a ratio of 80% (DEF) to 20% (ABC).

At what rate can DEF borrow for its fixed rate funds?

Select one:

a. 7.8200%

b. 8.0750%

c. 7.6500%

d. 8.50%, DEF should not enter into this swap with ABC

e. None of these options

2.

If call options on USD with a strike price of AUD1.207/USD have a premium of AUD0.025, what is the break-even price for a buyer or a seller of these options?

Assume that there are no brokerage fees.

Select one:

a. The buyer's BEP is AUD 1.1820 and the seller's BEP is AUD 1.2320

b. The buyer's BEP is AUD 1.1820 and the seller's BEP is AUD 1.1820

c. The buyer's BEP is AUD 1.2320 and the seller's BEP is AUD 1.2320

d. The buyer's BEP is AUD 1.2320 and the seller's BEP is AUD 1.1820

e. The buyer's BEP is AUD 1.2070 and the seller's BEP is AUD 1.2320