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

question 46

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.Which strategy (strategies) will eliminate credit risk?

• A)Strategy #1
• B)Strategy #2
• C)Strategy #3
• D)Strategy #1 and #2

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Definitions:

Prenatal Exposure

The exposure of a developing fetus to substances, conditions, or influences while in the womb, which may affect health outcomes.

Opiates

A group of drugs, derived from the opium poppy, used to treat pain by mimicking the body’s pain-relieving chemicals, but can also lead to dependency.

Marijuana

A psychoactive drug from the Cannabis plant used for medical or recreational purposes.

Methadone

A synthetic opioid used for pain management and as part of drug addiction detox programs, particularly for heroin.