The Falkland Cheese Company Has a Variable Rate Loan with an Interest

question 269

Multiple Choice

The Falkland Cheese Company has a variable rate loan with an interest rate collar. The company is assured that the interest rate will:

• A) Not increase above a stated rate and will decrease in direct proportion to changes in the discount rate.
• B) Both increase and decrease in direct proportion to changes in the discount rate.
• C) Increase in direct proportion to changes in the discount rate but remain above a stated rate.
• D) Not increase above a stated rate nor fall below a stated rate.
• E) Never change from the initial rate.

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Definitions:

LIFO Reserve

The difference between the cost of inventory calculated under the Last In, First Out method and the FIFO (First In, First Out) method.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations, calculated as current assets divided by current liabilities.

Current Assets

Short-term assets that are expected to be converted into cash, sold, or consumed within one year or the business's operating cycle, whichever is longer.

Market Value

The existing rate at which an asset or service might be sold or acquired in the trading space.