Instruction 8.1: For the Following Problem(s), Consider These Debt Strategies Being Considered

question 27

Multiple Choice

Instruction 8.1:
For the following problem(s) , consider these debt strategies being considered by a corporate borrower. Each is intended to provide $1,000,000 in financing for a three-year period.
• Strategy #1: Borrow $1,000,000 for three years at a fixed rate of interest of 7%.
• Strategy #2: Borrow $1,000,000 for three years at a floating rate of LIBOR + 2%, to be reset annually. The current LIBOR rate is 3.50%
• Strategy #3: Borrow $1,000,000 for one year at a fixed rate, and then renew the credit annually. The current one-year rate is 5%.
-Refer to Instruction 8.1. After the fact, under which set of circumstances would you prefer strategy #3? (Assume your firm is borrowing money.)

• A) Your credit rating stayed the same and interest rates went up.
• B) Your credit rating stayed the same and interest rates went down.
• C) Your credit rating improved and interest rates went down.
• D) Not enough information to make a judgment.

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Definitions:

Pressure Receptors

Sensory nerve endings that respond to changes in pressure, especially those in the cardiovascular system that help regulate blood pressure.

Smell Receptors

Specialized nerve cells located in the nose that detect chemical molecules in the air and transmit signals to the brain, resulting in the perception of odors.

Chemoreceptors

Sensory receptors that respond to chemical stimuli, found in various locations in the body, crucial for detecting changes in chemical composition.

Thermoreceptors

Specialized nerve cells that are able to detect changes in temperature, sending signals to the brain about the body’s external and internal temperature.