Instruction 15.1: for Following Problem(s), Consider These Debt Strategies Being Considered by Considered

Instruction 15.1:
For 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 15.1. Which strategy (strategies) will eliminate credit risk?

A) Strategy #1
B) Strategy #2
C) Strategy #3
D) Strategy #1 and #2

Correct Answer:

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