Use the following information to answer the following 2 questions

Companies A and B have been offered the rates according to the table below. Companies A and B agree to borrow in the market in which they have their comparative advantages, then they enter into a swap with each other on the same notional principal of $20 million for five year with annual payments. Under these swaps, Company A, Company B are all equally better off.

Fixed Rate Floating Rate

Company A 8.4% LIBOR + 0.6%

Company B 7.0% LIBOR

16. Which markets Companies A and B have their comparative advantages?

Company A Company B

A. Floating-rate market Floating-rate market

B. Floating-rate market Fixed-rate market

C. Fixed-rate market Fixed-rate market

D. Fixed-rate market Floating-rate market

17. Under all possible swaps, which of the following statements is the most accurate?

A. Company B pays Company A a floating rate of LIBOR and receives from Company A a fixed rate of 8.0%.

B. Company A pays Company B a floating rate of LIBOR and receives from company B a

fixed rate of 7.0%

C. Company A pays Company B a fixed rate of 7.4% and receives from Company B a floating rate of LIBOR

D. Need more information