1) Given that short-term interest rates typically fluctuate less than long-term
ID: 2665456 • Letter: 1
Question
1) Given that short-term interest rates typically fluctuate less than long-term rates, interest rate risk is least for...a. treasury bills
b. common stock
c. long-term government bonds
d. medium-term corporate bonds
2) Which of the following statements about factoring is true?
a. The firm, not the factor, bears the risk of collecting bad receivables in a factoring arrangement.
b. Factoring involves the outright sale of a firm's accounts receivable to the factor.
c. The borrowing firm is able to obtain a greater advance against inventory in a factoring arrangement than in a typical line of credit secured by accounts receivable.
d. Factoring firms sell the receivables of other firms.
3) How do interest rates affect the optimal order quantity Q*?
a. As interest rates increase, Q* decreases.
b. As interest rates decrease, Q* decreases.
c. As interest rates increase, Q* increases until it reaches a maximum, after which any further increase in interest causes a decline in Q*.
d. none of the above.
Explanation / Answer
1) a. treasury bills 2) b. Factoring involves the outright sale of a firm's accounts receivable to the factor. 3) a. As interest rates increase, Q* decreases
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