A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that:
A)interest rates would be declining.
B)interest rates would be increasing.
C)their bond rating might be lowered.
D)their bonds were going to be converted into equity.

Question

Quizplus · Accepted Answer

If the corporation with long-term fixed rate debt expects interest rates to decline, they might prefer floating-rate debt as it would allow them to take advantage of falling interest rates and potentially save money on interest payments. With floating-rate debt, the interest payments are adjusted periodically based on changes in prevailing interest rates, so as interest rates decrease, the corporation would pay less in interest.

A Corporation with Long-Term Fixed-Rate Debt Might Prefer Floating-Rate Debt