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

Question

Quizplus · Accepted Answer

If the corporation with funded fixed-rate debt believes that interest rates would be declining, it would prefer to have floating-rate debt. This is because as interest rates fall, the interest payments on floating-rate debt will also decrease, leading to lower debt servicing costs for the corporation.

A Corporation with Funded Fixed-Rate Debt Might Prefer Floating-Rate Debt