Instruction 9.1: For the Following Problem(s), Consider These Debt Strategies Being Considered

question 42

Multiple Choice

Instruction 9.1:
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 9.1. Choosing strategy #3 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:

Hydrogel Dressing

A type of wound dressing that provides moisture to the wound site, promoting healing in dry wounds by maintaining a moist environment.

Sterile Saline

A solution of salt in water that has been sterilized, used for medical purposes such as cleaning wounds or intravenous hydration.

Wound Drainage

The process of removing fluid that accumulates in a wound to prevent infection and promote healing.

Hydrogel Dressing

A wound care product that provides moisture to the wound site, promoting a moist healing environment and assisting in debridement.