Wicker Corporation Is Determining Whether to Support R100,000 of Its

Multiple Choice

Wicker Corporation is determining whether to support R100,000 of its permanent current assets with a bank note or a short-term bond.The firm's bank offers a two-year note where the firm will receive R100,000 and repay R118,810 at the end of two years.The firm has the option to renew the loan at market rates.As an alternative, the firm can sell its own 8.5 percent annual coupon bonds, with R1,000 face value and 2-year maturity, at a price of R973.97.Comparing the cost of the two alternatives, how many percentage points lower is the interest rate on the less expensive debt instrument?

A) 0%; the rates are equal.
B) 1.2%
C) 1.0%
D) 1.8%
E) 0.6%