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

question 38

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.If your firm felt very confident that interest rates would fall or,at worst,remain at current levels,and were very confident about the firm's credit rating for the next 10 years,which strategy (strategies) would you likely choose? (Assume your firm is borrowing money.)

• A)Strategy #3
• B)Strategy #2
• C)Strategy #1
• D)Strategy #1, #2, or #3, you are indifferent among the choices.

---

Definitions:

Emancipation

The act of freeing slaves from bondage, most prominently known through the Emancipation Proclamation by Abraham Lincoln during the American Civil War.

Voluntary Emigration

Refers to the process of individuals choosing to leave their country of origin to settle in another country without being forced to do so by any external factors.

Political Rights

Entitlements related to participation in the political process, including the rights to vote, run for office, and partake in decision-making affecting the community or nation.

Emancipation Proclamation

An executive order issued by President Abraham Lincoln in 1863, declaring the freedom of all slaves in Confederate-held territory.