9. Interest rates and decisions Suppose that a firm is facing an upward-sloping yield curve and needs to borrow money to invest in production. Does this mean that the firm should consider borrowing only at short-term rates? Yes, using short-term financing will give the firm the lowest possible interest rate over the life of the project. No, the firm needs to take the volatility of short-term rates into account. No, an upward-sloping yield curve means that the firm will get a lower interest rate if it uses long-term financing. Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market. Impact on Yield Cost of Borrowing Money from Bond Markets Scenario A car manufacturing company loses 40% of its market share and has a declining investment in new product development. A start-up company is struggling with finances for its projects. A company's interest coverage ratio improves. A company's credit rating was upgraded from AA to AAA. Grade It Now Save & Continue Continue without saving Impact on Yield Cost of Borrowing Money from Bond Markets lining Increase Decrease Grade It Now Save & Continue Continue without saving Impact on Yield Cost of Borrowing Money from Bond Markets ning Less expensive More expensive Grade It Now Save & Continue Continue without saving