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

question 22

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 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.

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Definitions:

Therapist

A professional trained to treat emotional, mental, and behavioral disorders through various psychological techniques and therapies.

Warn

To inform someone about a possible danger, problem, or other unpleasant situation, typically to prevent or minimize damage.

Involuntary Commitment

The process by which individuals are admitted to a psychiatric hospital or ward against their will due to danger to themselves or others.

Medication

Substances used to diagnose, treat, or prevent disease and improve health in humans or animals, often in the form of drugs or pharmaceuticals.