Lluvia Manufacturing and Paraguas Products both seek funding at the lowest possible cost. Lluvia would prefer the flexibility of floating-rate borrowing, while Paraguas wants the security of fixed-rate borrowing. Lluvia is the more creditworthy company. They face the following rate structure. Lluvia, with the better credit rating, has lower borrowing costs in both types of borrowing. Lluvia wants floating-rate debt, so it could borrow at

LIBOR plus 1.000 %LIBOR+1.000%.

However, it could borrow fixed at

9.000 %9.000%

and swap for floating-rate debt. Paraguas wants fixed-rate debt, so it could borrow fixed at

13.000 %13.000%.

However, it could borrow floating at

LIBOR plus 2.000 %LIBOR+2.000%

and swap for fixed-rate debt. What should they do? (LIBOR is

6.000 %6.000%.)

Lluvia's comparative advantage is %. (Round to three decimal places.) Lluvia's net interest after a swap with Paraguas is %. (Round to three decimal places.) Paraguas's net interest after a swap with Lluvia is %. (Round to three decimal places.) Lluvia's savings on borrowing versus net swap is %. (Round to three decimal places.) Paraguas's savings on borrowing versus net swap is %. (Round to three decimal places.) Therefore, Lluvia should borrow at the rate and Paraguas should borrow at the rate. (Select from the drop-down menus.)