Compared with a company with a strong financial rating,a company with a weaker rating is likely to be charged:
A) LIBOR.
B) LIBOR plus 10 basis points.
C) LIBOR plus 25 basis points.
D) LIBOR plus 50 basis points.

Question

Quizplus · Accepted Answer

A company with a weaker financial rating is considered to carry a higher risk of default on its debts. Therefore, the lender is likely to charge a higher interest rate to compensate for the additional risk. LIBOR (London Interbank Offered Rate) is a benchmark interest rate that reflects the cost of borrowing among banks, and it serves as a reference rate for many loans. The additional interest rate charged to a weaker-rated company is commonly referred to as the credit spread, which is typically expressed in basis points. Based on industry practices, a weaker-rated company may be charged LIBOR plus 50 basis points or more, depending on the specific circumstances. Hence, Option D (LIBOR plus 50 basis points) is the best choice among the given options.

Compared with a Company with a Strong Financial Rating,a Company