Your Firm Is Required by Its Bond Indenture to Make

question 234

Multiple Choice

Your firm is required by its bond indenture to make fixed-rate interest payments but prefers to make floating-rate payments. Another firm is obligated by its bond indenture to make floating-rate payments but desires to make fixed-rate payments. You can help both firms achieve their preferences by arranging a(n) ___________.

• A) Currency swap.
• B) Commodity swap.
• C) Interest rate forward contract.
• D) Interest rate option contract.
• E) Interest rate swap.

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Definitions:

Throughput

The rate at which goods or services are produced or processed in a system.

Break-Even Analysis

A means of finding the point, in dollars and units, at which costs equal revenues.

Variable Costs

Costs that vary directly with the level of production or business activity, such as materials and labor.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance.