If the Economy Is Shrinking, Firms with High Operating Leverage

question 70

Multiple Choice

If the economy is shrinking, firms with high operating leverage will experience

• A)higher decreases in profits than firms with low operating leverage.
• B)similar decreases in profits as firms with low operating leverage.
• C)smaller decreases in profits than firms with low operating leverage.
• D)no change in profits.

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Definitions:

Bond Issuing

The process by which a borrower (corporate or governmental) raises funds by selling bonds to investors.

Coupon Rate

The interest rate stated on a bond or other fixed-income security, determining the periodic interest payments to the bondholders.

Discount

The reduction applied to the face value of a bond or the lower than market price of an asset.

Par Value

The face value of a bond or stock as stated by the issuing company, which may differ from its market value.