Company A can borrow at either an 8.50% fixed rate or a floating rate of prime + 1.75%. Company B can borrow at either a floating rate of prime + 1.25% or a fixed rate of 8.65%. Company A prefers a floating rate but currently borrows at fixed, whereas Company B prefers a fixed rate but currently borrows at floating. Which one of the following terms would be acceptable to both Company A and B (& allowing the dealer to make a profit) if they opted to enter an interest rate swap?

A. 8.50% fixed for prime + 1.75% floating

B. 8.60% fixed for prime + 1.80% floating

C. 8.60% fixed for prime + 1.30% floating

D. 8.65% fixed for prime + 1.30% floating

E. 8.65% fixed for prime + 1.25% floating

What is the answer to this and why? Thanks.