Which of the Following Statements Is Most Correct

question 102

Multiple Choice

Which of the following statements is most correct?

• A) Under normal conditions the shape of the yield curve implies that the interest cost of short-term debt is greater than that of long-term debt, although short-term debt has other advantages that make it desirable as a financing source.
• B) Flexibility is an advantage of short-term credit but this is somewhat offset by the higher flotation costs associated with the need to repeatedly renew short-term credit.
• C) A short-term loan can usually be obtained more quickly than a long-term loan but the penalty for early repayment of a short-term loan is significantly higher than for a long-term loan.
• D) Statements about the flexibility, cost, and riskiness of short-term versus long-term credit are dependent on the type of credit that is actually used.
• E) Short-term debt is often less costly than long-term debt and the major reason for this is that short-term debt exposes the borrowing firm to much less risk than long-term debt.

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