Which of the following combinations of asset structures and financing patterns is likely to create the least volatile earnings?
A) Illiquid assets and heavy short-term borrowing
B) Illiquid assets and heavy long-term borrowing
C) Liquid assets and heavy long-term borrowing
D) Liquid assets and heavy short-term borrowing

Question

Quizplus · Accepted Answer

Liquid assets are easier to convert into cash and therefore less likely to experience volatility. Heavy long-term borrowing ensures a stable and predictable stream of debt payments over time, reducing the likelihood of sudden changes in financial obligations. This combination creates the least volatile earnings.

Which of the Following Combinations of Asset Structures and Financing