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

question 29

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. Choosing strategy #3 will:

• A) guarantee the lowest average annual rate over the next three years.
• B) eliminate credit risk but retain repricing risk.
• C) maintain the possibility of lower interest costs, but maximizes the combined credit and repricing risks.
• D) preclude the possibility of sharing in lower interest rates over the three-year period.

---

Definitions:

Cheating Spouse

A married person who is unfaithful or commits adultery, breaching the trust and expectation of monogamy in their relationship.

Exchange Relationships

Social interactions based on reciprocity and benefit, where the give-and-take dynamic is explicitly recognized by all parties involved.

Communal Relationships

Social connections where individuals focus on the welfare of the other as much as on their own, emphasizing mutual care and concern.

Regarding Yourself

Regarding Yourself typically refers to the way in which one views, perceives, or thinks about oneself, encompassing aspects of self-awareness and personal reflection.