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    Financing of debt

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    3. Assume a friend you know needs a mortgage loan to purchase a house. Your friend can purchase it now or wait until later and is unsure of what to do. What major economic indicators would you suggest they examine? To be specific, what would affect their decision to borrow now or postpone the purchase?

    4. For the past 3 years a major department store chain has averaged approximately $10 billion in long-term debt. For the sake of argument, let us assume that either now or one-year from now they wish to add an additional $5 billion to finance store expansion. This is a given and does not need to be commented on. How could changes in Federal Reserve policy affect the store's decision of when or if to raise the additional debt?

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    Your friend would want to look at inflation, unemployment, and other indicators of economic growth. It is the rate economic growth that would determine whether interest rates are going to fall or rise. Your friend wants to secure the best possible interest rate, since it will make his mortgage payments less. When the economy is growing rapidly, it is likely that the Fed will need to ...

    Solution Summary

    Use of economic indicators to determine financing decisions