Q.5 This question consists of two parts A & B. (20 marks) (A) Companies X and Y have been offered the following rates per annum on borrowing to transfer their liability, diagram (1). Now, show how their liabilities have been transformed by calculate their net payments. Do both of them change from floating to fix rate? Diagram (1): indicates the transformation of liabilities (10 marks) (B) Suppose that a European call option to buy a share for $100 costs $5 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised?