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1.Consider two hypothetical companies, A and B. Company A is a top-rated AAA company, whereas company B is a lower-rated BBB company. Assume that company

1.Consider two hypothetical companies, A and B. Company A is a top-rated AAA company, whereas company B is a lower-rated BBB company. Assume that company A wants to raise debt and pays a floating interest rate, which is usually done to finance short-term receivables and credit that earns a short-term interest rate. Company B, conversely, wants long-term fixed rate financing, perhaps to finance the purchase of machinery and equipment. The cost to each party of accessing either the fixed-rate or the floating-rate market for a new five-year debt issue is as follows:

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