CIMA Exam CIMAPRO19-P03-1 Topic 1 Question 69 Discussion

Actual exam question for CIMA's CIMAPRO19-P03-1 exam

Question #: 69
Topic #: 1

[All CIMAPRO19-P03-1 Questions]

TYU is a retailer selling televisions. The company is financed wholly by equity.

Why might TYU be exposed to interest rate risk?

ACustomers' disposable income may change.

BTYU's competitors may have variable rate borrowings.

CTYU's suppliers may have borrowings.

DTYU's cost of capital will vary with interest rates.

ETYU's competitors may have fixed rate borrowings.

Show Suggested Answer

Suggested Answer: C, D

by Jacquelyne at Jun 01, 2024, 12:54 PM

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Denny

23 days ago

Wow, interest rate risk? I thought TYU was in the TV business, not the bond market! Maybe they should start selling TVs with built-in interest rate hedges.

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Bettina

24 days ago

Hmm, this is a tricky one. I was tempted to choose B or C, but I think D makes the most sense. TYU's cost of capital is the key factor here, not its competitors or suppliers.

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Alease

27 days ago

I'm going with D as well. Even if TYU doesn't have any borrowings, its cost of equity will be affected by changes in interest rates, so it's still exposed to interest rate risk.

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Percy

20 days ago

A) Customers' disposable income may change.

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Marci

1 months ago

But wait, if TYU is financed wholly by equity, how can it be exposed to interest rate risk? Shouldn't that only apply to companies with debt financing? This question is a bit confusing.

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2 months ago

I think TYU might be exposed to interest rate risk because of D) TYU's cost of capital will vary with interest rates.

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