Which Statement Is True

question 97

Multiple Choice

Which statement is true?

• A) The less liquid assets a firm holds, the less likely it is that the firm will experience financial distress.
• B) The lower the liquidity ratios, the less liquidity risk a firm has.
• C) Liquid assets generate profits for the firm.
• D) Extremely high levels of liquidity guard against liquidity crises, but at the cost of lower returns on assets.

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Definitions:

Upward Sloping Term Structure

A situation in the bond market where longer-term debt securities yield higher returns than shorter-term ones, indicative of normal market conditions.

Interest Rates

The amount charged by lenders as a percentage of the principal, which borrowers pay for the use of assets.

Nominal Interest Rate

The stated interest rate of a financial product, not adjusting for inflation, representing the actual rate charged by lenders to borrowers.

100-Year Bonds

Bonds with an exceptionally long maturity of one hundred years, offering investors a fixed interest rate over a long period.