Question: Figure 5.4 shows that CBSs five-year borrowing rate is 1.3% and JPMorgan Chases is 2.6%. Which would you prefer? $500 from CBS paid today or

Figure 5.4 shows that CBS€™s five-year borrowing rate is 1.3% and JPMorgan Chases€™ is 2.6%. Which would you prefer? $500 from CBS paid today or a promise that the firm will pay you $550 in five years? Which would you choose if JPMorgan Chase offered you the samealternative?

FIGURE 5.4 Interest Rate Interest Rates on Five- Year Loans for Various Borrowers, July 2012 Interest rates shown based on yields of 5-year bonds for each issuer Note the variation in interest rates based on the riskiness of the borrower 0% 1% 2% 3% 4% 5% U.S. Treasuries 0.6% 3M Compary 0.8% AT&T 1.1% eBay CBS Corp Kraft Foods JPMorgan Chase Ford Motor Credit Smithfield Foods 1.2% Soume: FINRA.org 1.3% 1.8% 26% 3.4% 6.0%

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