Question

Tesco needs to borrow 10,000,000 euro now for a period of 4 years.

Tesco has a credit risk premium of 2%

currently 3 month Libor is 1.5% for variable rate borrowing

Tesco can currently borrow a 4.7% for fixed rate borrowing for a term of 3 years

Tesco could also borrow a fixed rate of 4.35% for a term of 2 years

Clearly, though, Tesco would need to refinance itself at the end of the borrowing term selected if the term selected was less than 4 years

Based in this information and the zero coupon yield curve what does Tesco need to consider when deciding how to arrange its borrowing based on your calculations

Tesco needs to borrow 10,000,000 euro now for a period of 4 years.

Tesco has a credit risk premium of 2%

currently 3 month Libor is 1.5% for variable rate borrowing

Tesco can currently borrow a 4.7% for fixed rate borrowing for a term of 3 years

Tesco could also borrow a fixed rate of 4.35% for a term of 2 years

Clearly, though, Tesco would need to refinance itself at the end of the borrowing term selected if the term selected was less than 4 years

Based in this information and the zero coupon yield curve what does Tesco need to consider when deciding how to arrange its borrowing based on your calculations

Answer 1