Problem 13.17 Suppose two firms want to borrow money from a bank for a period of one year. Firm A has excellent credit, whereas Firm B’s credit…

Problem 13.17

Suppose two firms want to borrow money from a bank for a period of one year. Firm A has excellent credit, whereas Firm B’s credit standing is such that it would pay prime + 2 percent. The current prime rate is 6.56 percent, the 30-year Treasury bond yield is 4.34 percent, the three-month Treasury bill yield is 3.51 percent, and the 10-year Treasury note yield is 4.19 percent. Now suppose that Firm B decides to get a term loan for 10 years. What is the loan rate for the firm? (Round percentage to 2 decimal places, e.g 52.32%.)

Firm B’s loan rate

%

How does this affect the company’s borrowing cost?

Company’s borrowing cost will 

increase

decrease

remain same

.

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