TABLE 15.2
Use the information to answer following question(s).

-Refer to Table 15.2. Which of the following are viable rates for the swap agreements with Barclay's Bank by Shell and Merck?
A) Shell borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Shell variable LIBOR + 1% while Shell pays Barclay's fixed 7 1/4%. At the same time, Merck borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Merck 6.00% while Merck pays Barclay's LIBOR plus 1/4%.
B) Merck borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Merck variable LIBOR + 1% while Merck pays Barclay's fixed 7 1/4%. At the same time, Shell borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%.
C) Merck borrows at a fixed rate of 7.5% and enters into a swap with Barclay's that pays Merck variable LIBOR + 1% while Merck pays Barclay's fixed 7 1/4%. At the same time, Shell borrows at the variable rate of LIBOR + 1/2% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%.
D) Merck borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Merck a fixed rate of 7% while Merck pays Barclay's variable LIBOR +1%. At the same time, Shell borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%.

Question

TABLE 15.2
Use the information to answer following question(s).
 
-Refer to Table 15.2. Which of the following are viable rates for the swap agreements with Barclay's Bank by Shell and Merck?
A) Shell borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Shell variable LIBOR + 1% while Shell pays Barclay's fixed 7 1/4%. At the same time, Merck borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Merck 6.00% while Merck pays Barclay's LIBOR plus 1/4%. 
B) Merck borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Merck variable LIBOR + 1% while Merck pays Barclay's fixed 7 1/4%. At the same time, Shell borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%. 
C) Merck borrows at a fixed rate of 7.5% and enters into a swap with Barclay's that pays Merck variable LIBOR + 1% while Merck pays Barclay's fixed 7 1/4%. At the same time, Shell borrows at the variable rate of LIBOR + 1/2% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%. 
D) Merck borrows at a variable rate of LIBOR + 1% and enters into a swap with Barclay's that pays Merck a fixed rate of 7% while Merck pays Barclay's variable LIBOR +1%. At the same time, Shell borrows at the fixed rate of 6.00% and enters into a swap agreement with Barclay's that pays Shell 6.00% while Shell pays Barclay's LIBOR plus 1/4%.

Quizplus · Accepted Answer

This is the only option where both companies are entering into agreements with Barclay's Bank that align with their respective borrowing needs and cost structures. Merck borrows at a variable rate and enters into a swap that pays them a variable rate, while Shell borrows at a fixed rate and enters into a swap that pays them a fixed rate. The other options have inconsistencies in either the borrowing rate or the swap agreement for one or both companies.

TABLE 15.2 Use the Information to Answer Following Question(s)