The Financial Manager of a Firm Has a Variable Rate

question 3

Multiple Choice

The financial manager of a firm has a variable rate loan outstanding. If she wishes to protect the firm against an unfavorable increase in interest rates she could:

• A) sell an interest rate futures contract of a similar maturity to the loan.
• B) buy an interest rate futures contract of a similar maturity to the loan.
• C) swap the adjustable rate loan for another of a different maturity.
• D) none of the above

Identify the graph of a given linear equation.

Sketch the graph of a line based on given information (like intercepts or slope).

Determine if two lines are parallel, perpendicular, or neither.

Use the formula for slope to find missing coordinates that satisfy a given slope.

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Definitions:

Total Cash Flows

The total sum of cash and cash-equivalents moving into and out of a company.

Capital Structure

The particular combination of debt and equity used by a firm to finance its overall operations and growth.

Cost of Capital

Cost of Capital is the rate of return that a company must earn on its project investments to maintain its market value and satisfy its creditors and investors.

Legal Bankruptcy

A legal process whereby individuals or businesses unable to meet their debt obligations can seek relief from some or all of their debts.