Determine interest rate on less expensive debt instrument


Wicker Corporation is determining whether to support $100,000 of its permanent current assets with a bank note or a short-term bond. The firm's bank offers a two-year note where the firm will receive $100,000 and repay $118,810 at the end of two years. The firm has the option to renew the loan at market rates. Alternatively, Wicker can sell 8.5 percent coupon bonds with a 2-year maturity and $1,000 par value at a price of $973.97. How many percentage points lower is the interest rate on the less expensive debt instrument?

Request for Solution File

Ask an Expert for Answer!!
Finance Basics: Determine interest rate on less expensive debt instrument
Reference No:- TGS055589

Expected delivery within 24 Hours