Good Company Prefers Variable to Fixed Rate Debt

question 2

Multiple Choice

Good Company prefers variable to fixed rate debt.Bad Company prefers fixed to variable rate debt.Assume the following information for Good and Bad Companies:

Given this information:

• A) an interest rate swap will probably not be advantageous to Good Company because it can issue both fixed and variable debt at more attractive rates than Bad Company.
• B) an interest rate swap attractive to both parties could result if Good Company agreed to provide Bad Company with variable rate payments at LIBOR + 1% in exchange for fixed rate payments of 10.5%.
• C) an interest rate swap attractive to both parties could result if Bad Company agreed to provide Good Company with variable rate payments at LIBOR + 1% in exchange for fixed rate payments of 10.5%.
• D) none of the above

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Definitions:

Entrance Strategies

Plans or approaches developed by businesses or organizations to enter into new markets or territories.

Collaborative Initiatives

Joint efforts by two or more parties, often involving partnerships between organizations to achieve common goals.

Disengage

To detach or withdraw from involvement in a particular activity, situation, or group.

Entrance Strategies

Plans and methodologies adopted by businesses to enter new markets or industries, which may include mergers, acquisitions, partnerships, and establishing new operations.