Instruction 15.1: for Following Problem(s), Consider These Debt Strategies Being Considered by Considered

question 59

Multiple Choice

Instruction 15.1:
For 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 15.1. After the fact, under which set of circumstances would you prefer strategy #3? (Assume your firm is borrowing money.)

• A) Your credit rating stayed the same and interest rates went up.
• B) Your credit rating stayed the same and interest rates went down.
• C) Your credit rating improved and interest rates went down.
• D) Not enough information to make a judgment.

---

Definitions:

Big Five Dimension

Refers to one of the five core components of personality in the Big Five model: openness, conscientiousness, extraversion, agreeableness, or neuroticism, each representing a broad area of personality traits.

Organizational Citizenship

Behaviors by employees that are beneficial to the organization but are not formally recognized by the organizational reward system.

Workplace Behavior

Patterns of action by individuals in an organizational setting that directly or indirectly influences their effectiveness and productivity.

Transformational Leader

Leaders who change their organizations in large and fundamental ways rather than simply managing the organization.