Selecting a Loan Maturity Omaha Co. has a subsidiary in Chile that wants to borrow from a
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Selecting a Loan Maturity Omaha Co. has a subsidiary in Chile that wants to borrow from a local bank at a fixed rate over the next 10 years.
a. Explain why Chile’s term structure of interest rates
(as reflected in its yield curve) might cause the subsidiary to borrow for a different term to maturity.
b. If Omaha is offered a more favorable interest rate for a term of 6 years, explain the potential disadvantage compared to a 10-year loan.
c. Explain how the subsidiary can determine whether to select the 6-year loan or the 10-year loan.
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