[NinaSun]

A company evaluating the advantages and disadvantages of short-term and long-term financing options would note which of the following two characteristics to be true?

Short-term Financing Long-term Financing

a. Decreased interest rate risk Increased credit risk

b. Increased interest rate risk Increased credit risk

c. Increased interest rate risk Decreased credit risk

d. Decreased interest rate risk Decreased credit risk

The answer is c. I understand short-term financing increased interest rate risk. I dont understand why long-term financing decreased credit risk. Can any one help? Thanks

AUD-74,75 11/2014
REG-80 04/2015
FAR-74, 91 11/2015
BEC-79 08/2015

[Panda Love]

I am just going over the same chapter right now and I found this in Becker.

“Advantages of long term debt are:

1. Decreased interest rate risk

2. Decreased credit risk

-securing long term debt guarantees financing over a long period and reduces the company's exposure to any risk that refinancing might be denied.”

I hope it helps… Good luck studying!

[NinaSun]

I get it. Thank you @Panda Love. In my Becker book (V2.0), it name “decrease credit risk” as “increased capital availability” The explanation is same,

AUD-74,75 11/2014
REG-80 04/2015
FAR-74, 91 11/2015
BEC-79 08/2015

[Author]

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