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%

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Definitions:

Adulthood Stage

A period in human development characterized by fully developed physical growth, maturity, and the assumption of adult roles and responsibilities.

Generativity Versus Isolation

A stage in Erik Erikson's theory of psychosocial development where middle-aged adults face the challenge of contributing to the next generation or feeling disconnected and isolated.

Psychic Energy

A concept in psychology referring to the force or power that drives human behavior, emotions, and thought processes.

Isolation

The state of being separated from others, which can lead to feelings of loneliness and disconnectedness.