A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that: A. interest...
A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that:
| A. |
interest rates would be increasing. |
|
| B. |
their bond rating might be lowered. |
|
| C. |
interest rates would be declining. |
|
| D. |
their bonds were going to be converted into equity. |
Homework Answers
Floating rate has interest rate linked to the interest rate
prevailing in the economy. Fixed rate donot fluctuate with change
in interest rates in the economy.
Hence option c interest rates would be declining is correct
option.
Add Answer to:
A corporation with long-term fixed-rate debt might prefer
floating-rate debt if they thought that:
A.
interest...
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Company A, a low-rated firm, desires a fixed-rate, long-term loan. A currently has access to floating...
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On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a...
On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a contractual interest rate of “LIBOR plus 5.5%,” which is reset annually on January 1 of each year. The LIBOR rates on January 1, 2017, 2018, and 2019, were 6.5%, 7.0%, and 5.5%, respectively. Required: Prepare a journal entry to record the issuance of the bonds on January 1, 2017, at par. What was the effective (or market) interest rate when the bonds were issued?...
On January 1, 2017, Nicks Corporation issued $250 million of floating-rate debt. The debt carries a...
On January 1, 2017, Nicks Corporation issued $250 million of
floating-rate debt. The debt carries a contractual interest rate of
“LIBOR plus 5.5%,” which is reset annually on January 1 of each
year. The LIBOR rates on January 1, 2017, 2018, and 2019, were
6.5%, 7.0%, and 5.5%, respectively.
Required:
Prepare a journal entry to record the issuance of the bonds on
January 1, 2017, at par. What was the effective (or market)
interest rate when the bonds were issued?...
18. Long-term interest rates are set by: (a) the supply and demand for money (b) the...
18. Long-term interest rates are set by: (a) the supply and demand for money (b) the supply and demand for bonds (c) the supply and demand for both bonds AND money (d) the coupon, or interest payment on a bond. 19. What is fixed and does not change on a bond is: (a) the price of the bond (b) the interest rate on the bond ! (c) the interest payment or coupon on a bond (d) all of the above
The notes payable are to banks, and the interest rate on this debt is 10%, the...
The notes payable are to banks, and the
interest rate on this debt is 10%, the same as the rate on new bank
loans. These bank loans are not used for seasonal financing but
instead are part of the company's permanent capital structure. The
long-term debt consists of 30,000 bonds, each with a par value of
$1,000, an annual coupon interest rate of 8%, and a 15-year
maturity. The going rate of interest on new long-term debt, rd, is
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INTEREST RATE SWAP HW PROBLEM Firm A can issue fixed-rate debt e-40:0 and floating rate debt...
INTEREST RATE SWAP HW PROBLEM Firm A can issue fixed-rate debt e-40:0 and floating rate debt e LIBOR+ 20 bps. Firm B, less credit worthy, can issue fixed-rate debt @ 12.0% and floating rate debt @ LIBOR + 60 bps. Firm A wishes to issue floating rate debt and firm B wishes to issue fixed rate debt. Take the part of a swap intermediary and create a fixed floating interest rate swap with terms that benefit all three partiesfirm A,...
Firm C has the ability to issue fixed-rate bonds in the Eurodollar market at a rate of 9%. Howeve...
Firm C has the ability to issue fixed-rate bonds in the Eurodollar market at a rate of 9%. However, it has a strong preference for paying floating rate interest on their debt, which it could do directly at a rate of LIBOR + 0.25%. In contrast, Firm D has a harder time borrowing due their limp credit rating. It wishes to borrow longterm at a fixed rate, which it can do directly in the fixed-rate bond market at 11%. Alternatively,...
6. A floating rate bond A. Typically pays interest that varies periodically with changes in some...
6. A floating rate bond A. Typically pays interest that varies periodically with changes in some specified market interest rate like the yield to maturity on 1-year Treasury bonds B. Typically floats with the dollar against other currencies C. Will always have higher returns required by investors than fixed-rate bonds D. Always has a market price that floats with the stock market E. Typically has a put feature that enables investors to buy it at a floating price 7. A...
Can you explain intuitively why the interest-rate risk is positively associated with maturity but negatively associated...
Can you explain intuitively why the interest-rate risk is positively associated with maturity but negatively associated with coupon rate of the debt instrument that you hold? How does the interest-rate risk vary with the level of interest rates? For example, during the recession when market interest rates are low, does the overall level of interest-rate risk become higher or lower? Imagine that you’re managing a portfolio of long- and short-term bonds. If you predict a rise in interest rates, how...
On January 1, 2017, Nicks Corporation issued $250 million of
floating-rate debt. The debt carries a contractual interest rate of
“LIBOR plus 5.5%,” which is reset annually on January 1 of each
year. The LIBOR rates on January 1, 2017, 2018, and 2019, were
6.5%, 7.0%, and 5.5%, respectively.
Required:
Prepare a journal entry to record the issuance of the bonds on
January 1, 2017, at par. What was the effective (or market)
interest rate when the bonds were issued?...
18. Long-term interest rates are set by: (a) the supply and demand for money (b) the supply and demand for bonds (c) the supply and demand for both bonds AND money (d) the coupon, or interest payment on a bond. 19. What is fixed and does not change on a bond is: (a) the price of the bond (b) the interest rate on the bond ! (c) the interest payment or coupon on a bond (d) all of the above
The notes payable are to banks, and the
interest rate on this debt is 10%, the same as the rate on new bank
loans. These bank loans are not used for seasonal financing but
instead are part of the company's permanent capital structure. The
long-term debt consists of 30,000 bonds, each with a par value of
$1,000, an annual coupon interest rate of 8%, and a 15-year
maturity. The going rate of interest on new long-term debt, rd, is
10%,...
INTEREST RATE SWAP HW PROBLEM Firm A can issue fixed-rate debt e-40:0 and floating rate debt e LIBOR+ 20 bps. Firm B, less credit worthy, can issue fixed-rate debt @ 12.0% and floating rate debt @ LIBOR + 60 bps. Firm A wishes to issue floating rate debt and firm B wishes to issue fixed rate debt. Take the part of a swap intermediary and create a fixed floating interest rate swap with terms that benefit all three partiesfirm A,...
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