If you an investor, would you rather have a firm issue a fixed or variable rate?...

If you an investor, would you rather have a firm issue a fixed or variable rate? Why?

Solutions

Expert Solution

Answer: variable rate should be preferred.

Investors used to take loan for investing in upcoming projects or expanding the existing one. Whatever be the circumstances, such investment give return in future. Initially the return is small and as the time goes on return increases, (suppose there is a loss in first 2 years and thereafter there is profit). Therefore, there is necessity of adjusting the amount of interest based on the amount of returns – the interest amount should be low at lower amounts of returns, and should be high at higher amounts of returns.

Fixed rate doesn’t have such flexibility, only the variable rate has. Therefore, the variable rate is preferred.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

If you were a start-up business, would you rather have high fixed costs and a low...

If you were a start-up business, would you rather have high fixed costs and a low contribution margin or low fixed costs and a high contribution margin? Alternatively, as you became a more mature company, which would be your better choice? Give an example to support your conclusion.

Firm C has the ability to issue fixed-rate bonds in the Eurodollar market at a rate...

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,...

assume you decide to take a mortgage loan, would you prefer a fixed-rate mortgage or variable...

assume you decide to take a mortgage loan, would you prefer a fixed-rate mortgage or variable rate mortgage? why?

Suppose one of your dreams is to be an investor with fixed income and variable income...

Suppose one of your dreams is to be an investor with fixed income and variable income securities. What important aspects must be taken into account in each case (fixed income and variable income) to build a personal investment portfolio.

Discuss the factors you would consider when deciding whether an investor has significant influence rather than...

Discuss the factors you would consider when deciding whether an investor has significant influence rather than control of an entity.

Variable OH rate $3.35 Fixed OH rate $1.80 Hours 18,900 17,955* Fixed overhead $46,000 Actual variable...

Variable OH rate $3.35 Fixed OH rate $1.80 Hours 18,900 17,955* Fixed overhead $46,000 Actual variable overhead $67,430 Total factory overhead $101,450 *Actual hours are equal to standard hours for units produced. The total factory overhead cost variance is a.$4,866.75 favorable b.$8,981.75 favorable c.$4,866.75 unfavorable d.$8,981.75 unfavorable

1.) If you were convicted of a crime, would you rather have a bench trial or...

1.) If you were convicted of a crime, would you rather have a bench trial or or jury trial? Why? 2.) Describe the jury selection process. How are individuals chosen? 3.) If the jury decides on a "not guilty" verdict even if jury nullification occurs, can they appeal the verdict? Why or why not?

Know how a firm can hedge its interest rate risk on a short-term fixed or variable...

Know how a firm can hedge its interest rate risk on a short-term fixed or variable rate bank loan or on a fixed or variable rate short-term investment using the interest rate futures market. Be able to explain how there is a gain or loss if a firm with a variable rate bank loan expects interest rates to rise and attempts to hedge this expected interest rate risk in the interest rate futures market.

7. Now assume the country has a fixed exchange rate rather than a floating rate. a....

7. Now assume the country has a fixed exchange rate rather than a floating rate. a. Explain how the central bank could use a change in the exchange rate to stimulate the economy. Also, explain what monetary and fiscal policies you would use along with a change in the exchange rate. b. Now suppose the country has large debts in a foreign currency. Would this change your answer in (a)? Explain.

Would you rather have had a DB or a DC in the summer of 2008? Explain.

Subjects