When There Is an Upward Sloping Yield Curve and Interest

question 83

Multiple Choice

When there is an upward sloping yield curve and interest rates are forecast to increase a firm decides to restructure its outstanding debt to longer term then in the short-term the company:

• A) faces an immediate decrease in its costs of funds.
• B) faces an immediate increase in its costs of funds.
• C) is reducing its basis risk.
• D) is reducing its business risk.

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Definitions:

Chi-square Distribution

A statistical distribution that describes the distribution of the sum of the squares of a set of variables, often used in hypothesis testing.

Random Variable

A variable that can take on numerical values based on the outcomes of a random event.

Value

The importance, worth, or usefulness of something or a numerical quantity measured or assigned or computed.

Test Statistic

A statistic calculated from sample data, used to assess the plausibility of a hypothesis.