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.

---

Definitions:

Inventory Period

The average time it takes for inventory to be sold and replaced over a given period.

Cost of Goods Sold

This refers to the direct costs attributable to the production of the goods sold by a company, including materials and labor.

Inventory Turnover

A measure of how many times a company's inventory is sold and replaced over a specific period, indicating the efficiency of inventory management.

Receivables Turnover

A financial metric that measures how efficiently a company collects cash from its credit sales by calculating the number of times receivables are turned over during a period.