If a Firm Has Both Interest Expense and Lease Payments

question 90

Multiple Choice

If a firm has both interest expense and lease payments,

• A)times interest earned will be smaller than fixed charge coverage.
• B)times interest earned will be greater than fixed charge coverage.
• C)times interest earned will be the same as fixed charge coverage.
• D)fixed charge coverage cannot be computed.

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Definitions:

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates, expressed in years.

Interest Rate Risk

The potential for investment losses due to fluctuations in interest rates, affecting the value of interest-bearing assets.

Default Risk

The possibility that a borrower will fail to meet the obligations of a debt agreement.

Adjustable Maturity Dates

Adjustable maturity dates refer to the flexibility allowed in the due dates of financial instruments, allowing for changes in the repayment schedule.