CFA Practice Question
When market interest rates increase, will a company that issued fixed-rate debt to
the increase in rates most likely experience a(n):
economic loss? | change in the amount of debt recorded on the balance sheet?
A. No | No
B. No | Yes
C. Yes | No
Explanation: An increase in interest rates would reduce the market value of the debt and produce an
economic gain for the issuing company; a change in market interest rates would not
affect the amount of debt recorded on the issuing company balance sheet.
User Contributed Comments 4
| User | Comment |
|---|---|
| rgat | not following why an econ gain would result if market value of the debt decreased. Seems the gain would result when the MV of debt increases. Any help?? |
| pjdeschenes | The company issued the debt, so the debt is a liability to the company. If the debt's MV decreases, it reduces the company's liability, thus a gain. |
| StanleyMo | if the questions ask market value / book value of bond, we should say yes, am i right? while the amount will not change, as we still going pay it at the end. |
| thebkr7 | I want half marks! xD jokes, if only... |