A Firm Can Borrow at Fixed AA Rates Plus 1

question 37

Multiple Choice

A firm can borrow at fixed AA rates plus 1% for long-term loans.If it swaps its long-term payments so that it receives the fixed AA rate and pays a AA floating rate,what is the rate of interest on its borrowing if the floating rate is r%?

• A)r + 1%
• B)r - 1%
• C)r%
• D)1%
• E)2%

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Definitions:

Net Realizable Value

The estimated selling price of goods minus the cost of their sale or completion.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of a company's accounts receivable that may not be collected.

Accounts Receivable

Money owed to a company by its customers for goods or services delivered or used but not yet paid for.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of receivables that may not be collectible.