1. Rank from lowest credit risk to highest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 5.55 percent, IBM bond with yield of 7.95 percent, Trump Casino bond with a yield of 9.15 percent and Banc Ono bond with a yield of 6.12 percent
Trump Casino, IBM, Banc Ono, Treasury
Trump Casino, Banc Ono, IBM, Treasury
Treasury, Banc Ono, IBM, Trump Casino
Treasury, Trump Casino, Banc Ono, IBM
2. 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. The current one-year rate is 5%. Which strategy (strategies) will eliminate credit risk? 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.
a. Strategy #1
b. Strategies #1 and #2
c. Strategy #3
d. Strategy #2