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

question 41

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. Choosing strategy #1 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.

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Definitions:

Heart Disease

A range of conditions that affect the heart, including coronary artery disease, arrhythmias, and congenital heart defects.

Anti-Inflammatory Drugs

Medications designed to reduce inflammation and relieve pain; includes both over-the-counter and prescription drugs.

CVD

Stands for Cardiovascular Disease, encompassing a range of heart and blood vessel conditions, including coronary artery disease and stroke.

Inflammation

The body's protective response to injury or damage, characterized by redness, swelling, heat, and sometimes pain and loss of function.