A Corporation with Long-Term Fixed-Rate Debt Might Prefer Floating-Rate Debt

question 58

Multiple Choice

A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that:

• A)interest rates would be declining.
• B)interest rates would be increasing.
• C)their bond rating might be lowered.
• D)their bonds were going to be converted into equity.

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Definitions:

Compounded Annually

Interest calculation method where the interest is calculated on the initial principal, which also includes all the accumulated interest from the previous periods on a loan or deposit.

Principal

The original sum of money borrowed in a loan, or the amount of the investment, excluding any interest or growth.

Present Value

The present value of an anticipated sum of money or series of cash flows, considering a certain return rate.