Assume that changes in interest rates reflect mainly changes in the rate of inflation.If a firm's unlevered cash flows:
A) don't change with the rate of inflation,then the firm will want its liabilities to be exposed to interest rate risk.
B) increase with the rate of inflation,then the firm will want its liabilities to be exposed to interest rate risk.
C) decrease with the rate of inflation,then the firm will want its liabilities to be exposed to interest rate risk.
D) increase with the real interest rate,then the firm will want its liabilities to be less exposed to interest rate risk.
Correct Answer:
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