A Firm with Fixed-Rate Debt That Expects Interest Rates to Fall

question 31

Multiple Choice

A firm with fixed-rate debt that expects interest rates to fall may engage in a swap agreement to:

• A) pay fixed-rate interest and receive floating rate interest.
• B) pay floating rate and receive fixed rate.
• C) pay fixed rate and receive fixed rate.
• D) pay floating rate and receive floating rate.

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Definitions:

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and so close to their maturity that they present insignificant risk of changes in value.

Investing Activities

Transactions related to the acquisition or disposal of long-term assets and other investments not classified as cash equivalents.

Financing Activity

Refers to transactions and events that affect long-term liabilities and equity of a company, including securing loans and issuing shares.

Investing Activity

Financial actions related to the acquisition and disposal of long-term assets and other investments not considered as cash equivalents.