Question
Need help on this practice question. Company X can borrow at a floating rate of prime plus 1 percent or at a fixed rate of
Need help on this practice question.
Company X can borrow at a floating rate of prime plus 1 percent or at a fixed rate of 10 percent. Company Y can borrow at a floating rate of prime plus 2 percent or at a fixed rate of 9.5 percent. Company X would like a fixed-rate loan, while Company Y would like a floating-rate loan. What would be an appropriate transaction?
A) Company X swaps its 10% fixed-rate loan for Company Y's prime plus 2% floating-rate loan
B) Company X swaps its 9.5% fixed-rate loan for Company Y's prime plus 1% floating-rate loan
C) Company X swaps its prime plus 2% floating-rate loan for Company Y's 10% fixed- rate loan
D) Company X swaps its prime plus 1% floating-rate loan for Company Y's 9.5% fixed-rate loan
E) No transaction can be agreed upon - Company X borrows at a 10% fixed rate and Company borrows at a floating rate of prime plus 2%
Is it D?
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