Series 79 practice questioneasyDebt Offerings
Why might an issuer prefer fixed-rate debt over floating-rate debt?
- AIt eliminates all refinancing risk
- BIt locks in borrowing cost and reduces exposure to rising interest rates✓ Correct answer
- CIt makes covenants unnecessary
- DIt converts debt into equity automatically
Explanation
Why B — It locks in borrowing cost and reduces exposure to rising interest rates
It locks in borrowing cost and reduces exposure to rising interest rates Fixed-rate debt provides certainty of coupon expense even if benchmark rates move upward. That can be attractive when rates are expected to rise or budget stability is important.
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