The options for each drop-down question is either increase/decrease for the impact on yield, and cost of borrowing money from Bond Markets is either more or less expensive.

9. Interest rates and decisions Aa Aa 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? O The use of shortterm financing over long-term financing for a long-term project will increase the risk of the firm O A firm will only borrow at short-term rates when the yield curve is downward-sloping . O 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. Cost of borrowing Money from Impact on Yield Bond Markets Scenario A companys interest coverage ratio improves. Y | A car manufacturing company loses 40% of its market share and has a declining investment in new product development A companys credit rating was upgraded from AA to AAA. TJ C A start-up company is struggling with finances for its projects More expensive Less expensive