Instruction 8.1: For the Following Problem(s), Consider These Debt Strategies Being Considered

question 46

Multiple Choice

Instruction 8.1:
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 8.1. 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

---

Definitions:

Elimination Half-life

The amount of time it takes for the concentration of a substance in the body to be reduced by 50%, a key pharmacokinetic parameter.

Therapeutic Half-life

The duration it takes for half of a drug dose to be eliminated from the body, affecting the duration and intensity of its pharmacological action.

Distribution Half-life

The time it takes for a substance (such as a drug) to reduce to half its initial concentration in the blood or body, indicating how quickly it is processed and distributed.

Enteral

Referring to the route of medication or nutrition administration directly into the intestines, usually through a tube.