Which One of the Following Situations Creates the Most Liquidity

question 53

Multiple Choice

Which one of the following situations creates the most liquidity risk?

• A)Long-term assets funded by long-term liabilities
• B)Short-term assets funded by short-term liabilities
• C)Long-term assets funded by short-term liabilities
• D)Short-term assets funded by long-term liabilities
• E)Long-term liabilities funded by short-term assets

---

Definitions:

Bond Ratings

A classification system that denotes the credit quality and perceived risk of bonds issued by corporations, municipalities, or sovereign entities.

Financial Projections

Forecasts of future revenue, expenses, and other financial details of a company.

Convertible Debt

A type of bond or loan that can be converted into a predetermined amount of the company's equity at certain times during its lifespan, usually at the discretion of the bondholder.

Zero Coupon Bond

A bond that pays no interest during its life. A “zero” sells for the present value of the principal repayment. However, the IRS imputes interest during the bond’s life on which the bondholder must pay tax.