Economic loss - market interest rates

CFA Level I
#1

I’m not able to get this straight into my head… When market interest rates increase, will a company that issued fixed-rate debt prior to the increase in rates most likely experience a(n): … economic loss… change in the amount of debt recorded on the balance sheet a) … no…no b)… no…yes c)… yes…no d)…yes …yes

#2

market interest rates increase price of bond falls but earlier you had sold the bonds at a higher price. so you have an economic gain. but this gain is not recorded on the balance sheet. so answer is economic loss: no recorded on balance sheet: no

#3

cpk, basically meaning that the company has minimized the interest to be paid out which is an explicit factor with regards to opportunity cost and thus an econ gain. thanks

#4

so if rates had decrease, you will experience economic loss, because economic loss includes opportunity costs, and you have locked yourself into a higher rate. Is that correct?

#5

that’s correct, LongOnCFA.

#6

Answer is A, There was a economic gain instead and BV does not change