A borrower obtained a 6-year loan at a premium of 2% based on a prime rate of 3%. This is a floating-rate loan. One year later, the prime rate increased to 5% and remained at this rate for the rest of the loan tenure. Which of the following is FALSE?

Group of answer choices

a) Floating rate loans are favourable to borrowers in an environment where interest rates are expected to decline.

b) The premium measures the credit risk of the customer and will be higher for customers with greater default risk.

c) Floating-rate loans are favourable to borrowers in an environment where interest rates are expected to rise.

d) The loan interest rate paid by the borrower was 5% for the first year and thereafter, increased to 7% for the next 5 years.