Question: You can borrow a long-term loan at either a fixed rate of 8% or a floating rate set at prime plus 1.25%. Your friend can

You can borrow a long-term loan at either a fixed rate of 8% or a floating rate set at prime plus 1.25%. Your friend can borrow money at either a floating rate of prime plus 0.75% or a fixed rate of 10%. You prefer a floating rate and your friend prefers a fixed rate. Given this information, which one of the following statements is correct with a possible swap agreement between you and your friend?

A. After swapping interest rates with your friend, your friend may be able to pay a fixed rate of 7%.

B. After swapping interest rates with your friend, your friend may be able to pay a fixed rate of 10.5 %.

C. After swapping interest rates with your friend, you may be able to pay a floating rate of prime plus 1%.

D. After swapping interest rates with your friend, you may be able to pay a floating rate of prime plus 0.6%.

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