A Corporation with Funded Fixed-Rate Debt Might Prefer Floating-Rate Debt

question 16

Multiple Choice

A corporation with funded fixed-rate debt might prefer floating-rate debt if it thought that:

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

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Definitions:

Poisson Distribution

A numerical distribution detailing the probability of specific event counts happening over a determined timeframe or spatial range.

Negative Exponential Distribution

A probability distribution used to model the time between events in a Poisson process, representing the decay of quantities.

Average Arrival Rate

A metric used in queueing theory indicating the average number of entities (people, items, etc.) arriving at a system or service point per unit of time.

Average Service Rate

The average rate at which a service process can complete work or tasks, often measured over a specific period.