An investor might prefer floating-rate debt if she thought that:
A) interest rates would rise.
B) interest rates would decline.
C) its bond rating might be lowered.
D) its bonds were going to be converted into equity.

Question

Quizplus · Accepted Answer

Floating-rate debt typically pays interest that is tied to a benchmark rate such as LIBOR or the Prime Rate. As interest rates rise, the interest payments on the debt increase, providing protection against inflation. Therefore, an investor may prefer floating-rate debt if she believed that interest rates were going to rise.

An Investor Might Prefer Floating-Rate Debt If She Thought That