Wicker Corporation Is Determining Whether to Support $100,000 of Its

question 12

Multiple Choice

Wicker Corporation is determining whether to support $100,000 of its permanent working capital with a bank note or a short-term bond. The firm's bank offers a two-year note for which the firm will receive $100,000 and repay $118,810 at the end of two years. The firm has the option to renew the loan at market rates. Alternatively, Wicker can sell 8.5 percent annual coupon bonds with a 2-year maturity and $1,000 par value at a price of $973.97. How many percentage points lower is the interest rate on the less expensive debt instrument?

• A) 0.0%
• B) 1.2%
• C) 1.0%
• D) 1.8%
• E) 0.6%

---

Definitions:

Payor Bank

A bank that is responsible for paying a check or draft drawn upon it by its customer.

Certified Checks

Checks guaranteed by a bank, verifying that there is sufficient funds available in the issuer's account to cover the check.

Teller's Checks

A bank-issued check drawn on the bank's own funds and signed by a teller, typically used when someone needs to guarantee payment.

Refuse

To decline to accept or to reject.