Riley Co Is Considering a Short-Term or Long-Term Financing Plan for for $4,000,000

question 59

Multiple Choice

Riley Co. is considering a short-term or long-term financing plan for $4,000,000 in assets. They expect the following 1 year rates over the next 3 years: 6.5%, 7.75%, and 9%. Their long-term interest rate will be 7.5% for the 3 years. Assuming the rates follow their expectations, what will be the difference in interest costs over the 3 years?

• A) Long-term interest will be $30,000 more than short-term interest
• B) Long-term interest will be $30,000 less than short-term interest
• C) Long-term interest will be $140,000 less than short-term interest
• D) None of these

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Definitions:

Terrorist Attacks

Violent acts or threats intended to create fear and achieve a political, religious, or ideological aim, often targeting civilians.

Exogenously

Originating from outside; determined by external factors not within the system.

Endogenously

Originating or produced from within a system, indicating a factor that is internal to an economic model or process.

Natural Rate

The unemployment rate at which the economy operates at full employment, where inflation is stable without accelerating.