Can someone please explain the reasoning and calculations that lead to these two problems answers.

12. Dog's can borrow money at either a fixed rate of 8.25 percent or a variable rate set at prime plus .5 percent. Cat's can borrow money at 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 .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.

Answer: C

14. Murray's can borrow money at a fixed rate of 10.5 percent or a variable rate set at prime plus 2.25 percent. Fred's can borrow money at a variable rate of prime plus 1.5 percent or a fixed rate of 12 percent. Murray's prefers a variable rate and Fred's prefers a fixed rate. Given this information, which one of the following statements is correct?

A) After swapping interest rates with Fred's, Murray's may be able to pay prime plus 2 percent.

B) Both companies can profit in a swap that will allow Murray's to pay a variable rate of prime plus one percent.

C) Fred's will end up with a fixed rate of 10 percent.

D) There are no terms under which Murray's and Fred's can swap interest rates.

Answer: A