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

question 52

Multiple Choice

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 7.1. The risk of strategy #1 is that interest rates might go down or that your credit rating might improve. The risk of strategy #2 is (Assume your firm is borrowing money.)

• A) that interest rates might go down or that your credit rating might improve.
• B) that interest rates might go up or that your credit rating might improve.
• C) that interest rates might go up or that your credit rating might get worse.
• D) none of the above.

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Definitions:

Sense of Agency

The feeling of control over actions and their consequences, recognizing oneself as the agent causing events.

Offers Contribution

The act of making offerings or contributions that add value or support to a project, organization, community, or system.

Packaging Standards

Regulations and guidelines that dictate the materials, design, and labeling used in packaging products.

Enhances Belonging

Actions or factors that increase the feeling of being an accepted member of a community or group.