(The following information relates to Questions 31 to 33) NST Trust is in the market to borrow $2 million for five years. Because of its small size and lack of diversification in its loan portfolio, NST prefers fixed-rate debt to minimize fluctuations in its interest payments. PBC Bank is a large bank with $150 billion in assets. It is in the market to borrow $2 million to finance a loan to a customer. The rate on the loan is floating because of the customer's preferences. Therefore, PBC prefers to borrow on a floating-rate basis. It happens that NST and PBC have talked to the same money market dealer about their - needs. The dealer's observations after checking the market are summarized as below. PBC Bank NST Trust Fixed-rate Market 6.50% 8.50% Floating-rate Market T-bill rate plus 1% T-bill rate plus 2.25% 31. What is the net quality differential? A) 2.00% B) 0.75% C) 3.25% D) 1.25% Hint: NQD-ARX -ARZ 32. Which of the following is true? A) PBC Bank has the absolute advantages in both the fixed-rate and floating-rate markets NST has comparative advantages in the floating-rate market $15,000/year in interest costs can be saved by allowing PBC and NST to borrow at their preferred terms through a swap arrangement All of the above D) 33. In order to share equally the savings in interest costs, what rate will NST pay in the swap contract as a fixed-payment party to PBC in the fixed-rate market? A) B) 8.125% 7.500% 7.750% 7.250%