Company A has issued a 7% fixed-rate bond and B has issued a floating-rate bond paying LIBOR.

Company A enters into a swap deal to pay the dealer LIBOR and receive a rate of 6.95%. Company B

enters the swap deal to pay a rate of 7.05% and receive LIBOR. Which of the following is correct?

1. A pays fixed-rate 7.05%

II. A pays floating rate at LIBOR +0.05%

III B pays LIBOR +0.05%

IV B pays fixed-rate 7.05%

V. Dealer earns 1%

A) I and III

B) I, III, and V

C) II, IV, and V

D) II and IV