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

question 53

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. What is the risk of strategy #3? (Assume your firm is borrowing money.)

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

Identify the roles of government budget deficits and surpluses in the open-economy macroeconomic model.

Analyze the implications of changes in real interest rates on net capital outflow and the demand for loanable funds.

Understand the basic concepts of self-attribution and explanatory styles.

Recognize the self-serving bias and its effects on personal and situational attributions.

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Definitions:

Chromatin

A complex of DNA and proteins found in the nucleus of cells, which condenses to form chromosomes during cell division.

Nucleolus

A structure within the nucleus of a cell where ribosomal RNA is produced.

Microtubules

Cylindrical structures within the cell that are part of the cytoskeleton, helping in cell shape, division, and intra-cellular transport.

Centrioles

Cylindrical structures found in animal cells that are involved in the development of spindle fibers in cell division.