Assume That Changes in Interest Rates Reflect Mainly Changes in the Rate

question 15

Multiple Choice

Assume that changes in interest rates reflect mainly changes in the rate of inflation.If a firm's unlevered cash flows:

• A)don't change with the rate of inflation,then the firm will want its liabilities to be exposed to interest rate risk.
• B)increase with the rate of inflation,then the firm will want its liabilities to be exposed to interest rate risk.
• C)decrease with the rate of inflation,then the firm will want its liabilities to be exposed to interest rate risk.
• D)increase with the real interest rate,then the firm will want its liabilities to be less exposed to interest rate risk.

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