The primary reason that individuals and firms choose to borrow long-term is to reduce the risk that interest rates will ________ before they pay off their debt.

Question

Quizplus · Accepted Answer

Borrowing long-term allows individuals and firms to lock in a fixed interest rate for a longer period, which reduces the risk of interest rate fluctuations in the future. If interest rates were to rise, those who borrowed at a fixed long-term rate would benefit as they would be paying a lower rate than the prevailing market rate. Conversely, if interest rates were to fall, those who borrowed at a fixed long-term rate would be paying a higher rate than the prevailing market rate. Therefore, the primary reason for borrowing long-term is to reduce the risk of interest rates rising before the debt is paid off.

The Primary Reason That Individuals and Firms Choose to Borrow