Interest Rate Swaps Allow Both Counterparties To

question 41

Multiple Choice

Interest rate swaps allow both counterparties to:

• A)Reduce interest expenses
• B)Avoid repayment of the notional principal
• C)Rearrange the balance sheet
• D)Pay a floating rate of interest on their debt

Learn how the marginal cost of capital (MCC) and investment opportunity schedule (IOS) guide capital budgeting decisions.

Understand the components of a firm's capital, and their relative costs.

Calculate the after-tax cost of debt and understand its influence on the weighted average cost of capital (WACC).

Apply the dividend growth model to estimate the cost of common equity.

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Definitions:

Structure of Personality

The organized pattern of behaviors and attitudes that distinguishes an individual and that is formed by the integrated components of id, ego, and superego in psychoanalytic theory.

Cattell

Raymond Cattell, a psychologist known for his work in personality, intelligence theory, and factor analysis.

Social Desirability

The tendency of respondents to answer questions in a manner that will be viewed favorably by others.

Discriminant Validity

A form of validity that ensures a test measures what it is supposed to measure, and not something else, by demonstrating little correlation with variables from which it should differ.