Interest Rate Swaps Can Be Used for All of the Following

question 2

Multiple Choice

Interest rate swaps can be used for all of the following purposes except:

• A)to borrow at the prime rate
• B)to convert a fixed-rate loan into a floating-rate loan
• C)to convert a floating-rate loan into a fixed-rate loan
• D)to speculate on interest rates
• E)to hedge interest rate risk

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Definitions:

Incremental Value

It is the additional value generated by an investment, project, or action over the current baseline or alternative options.

All-Equity Firms

Companies that finance their operations exclusively through equity without any debt.

Net Present Value

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Net Present Value

The difference between the present value of cash inflows and outflows over a period, used to evaluate the profitability of an investment.