Which of the following statements is correct?
A) The shape of the yield curve affects the price choice in the firm's financing decision.
B) The shape of the yield curve affects the cost choice in the firm's financing decision.
C) The shape of the yield curve affects the return choice in the firm's financing decision.
D) The shape of the yield curve affects the maturity choice in the firm's financing decision.

Question

Quizplus · Accepted Answer

The shape of the yield curve affects the maturity choice in the firm's financing decision, as it determines the cost of funds for different maturities. A steep yield curve implies higher borrowing costs for longer-term funding, while a flat yield curve implies similar borrowing costs for different maturities. Therefore, a firm must consider the shape of the yield curve while deciding on the maturity structure of its financing. The other options may be indirectly influenced by the shape of the yield curve, but they are not as direct as the maturity choice.

Which of the Following Statements Is Correct