#3 and #4

3. A borrower has the option of accepting a fixed rate loan for five years at 10% or a floating rate loan of LIBOR plus 3%. Assume the current LIBOR rate is 6%. If the floating rate loan was chosen, did the borrower make the right decision if the LIBOR rates at the beginning of the next four years are 6.5%, 7.0%, 7.5%, and 7.75%? Note that the LIBOR rate at the beginning of the year is used to determine the payment at the end of the year. 4. A borrower can borrow $10 million at a fixed-rate loan at 7.5% for six years, or a floating-rate loan at LIBOR plus 2%. Assume the current LIBOR rate is 7%. After some consideration, he chooses the fixed rate loan. Did he make the right decision if the LIBOR rates over the next five years were 6.5%, 6.0%, 5.5%, 5.0% and 4.5%