Question
Suppose credit rating is the only thing that determines companies' debt interest rate. Below is the interest rate associated with each credit rating. Credit
Suppose credit rating is the only thing that determines companies' debt interest rate. Below is the interest rate associated with each credit rating. Credit rating Interest rate 3% 3.5% 4.5% 5.5% 7.5% AAA AA A BBB BB Consider a company that is issuing a ten-year fixed-rate bond with a principal value of $1 billion today. Throughout this question, ignore the time value of money (i.e., a dollar in the future is worth the same as a dollar today). (a) (1 point) Suppose the company currently has a credit rating of AA. How much interest expense (in dollars) can it save in total over the next ten years if its credit rating become AAA?
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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