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?

Multiple Choice

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

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

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

• Fred's has the best chance of profiting if it does a currency swap with Murray's.

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