9. Interest rates and decisions Which of the following best explains why a firm that needs to borrow money would borrow at long-term rates when short-terms rates are lower than long-term rates? A firm will only borrow at short-term rates when the yield curve is downward-sloping. The use of short-term financing over long-term financing for a long-term project will increase the risk of the fim. The firm's interest payments will be the same whether it uses short-term or long-term financing, so it is essentially indifferent to which type of financing it uses 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 XYZ CAS credit rating was downgraded from A to 388 A company uses debt to buy another company. Such an event is called a leveraged buyout A company's financial health improves There is an increase in the perceived marketablity of a company's bands, so the quidity premium decreases