Company a Can Borrow Money at a Fixed Rate of 7.5

Multiple Choice

Company A can borrow money at a fixed rate of 7.5 percent or a variable rate set at prime plus 1 percent. Company B can borrow money at a variable rate of prime plus .5 percent or a fixed rate of 8 percent. Company A prefers a variable rate and Company B prefers a fixed rate. Which one of the following statements depicts the most favorable outcome of a swap between Companies A and B?

A) Company A could pay a fixed rate of 7.25 percent.
B) Company A could pay a fixed rate of 7.75 percent.
C) Company B could pay a fixed rate of 8 percent.
D) Company B could pay the variable prime rate + 1 percent.
E) Company A could pay the variable prime rate + .75 percent.