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Firms of type A are in good financial health and are relatively low risk. The appropriate premium over the risk-free rate of lending to these
Firms of type A are in good financial health and are relatively low risk. The appropriate premium over the risk-free rate of lending to these firms is 2 percent. If you were the financial advisor to such a firm, what suggestions would you make to the firm's management about obtaining borrowed funds? Advise the firm to accept the interest rate offered in the market that reflects the average risk of all firms. Providing additional information to try to reveal itself as a type A firm will result in an even higher interest rate being charged. Advise the firm to stop publishing quarterly accounts and other required accounting information. Advise the firm to provide as much information as possible to potential investors in order to identify itself as a type A firm, or to borrow from a financial intermediary where it has maintained accounts because the quality of the firm would be known. O Advise the firm to withdraw its funds from the institution with which it has been banking with for years and keep all its cash in a file box at the office. That way, the firm can keep its spending habits private
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