COMPANY X prefers a fixed interest rate and COMPANY Y a variable interest rate.

The following information is known about the borrowing opportunities for both companies:

Company X Company Y

Fixed interest 2.5% 3.75%

Variable interest LIBOR + 1% LIBOR + 1.5%

Based on the above information (no calculations required):

Select one:

a.The interest rate swap could be beneficial to both parties if COMPANY X agrees to exchange variable rate loan payments for fixed rate payments from COMPANY Y.

b.Company X and Y may enter into an interest rate option agreement

c.The interest rate swap is unlikely to be beneficial to COMPANY X because it has the ability to finance itself at both fixed and variable interest rates more cheaply than COMPANY Y

d.Company X takes out a loan for company Y itself