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    Market value if liabilities

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    Assume that interest rates have increased substantially. Would this tend to increase or decrease the market value of a firm's liabilities (relative to the book value of liabilities)?

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    This would decrease the market value of interest bearing liabilities.
    For example, the firm has issued bonds. These are long term liabilities. The market ...

    Solution Summary

    The solution explains the impact on market value of liabilities of an increase in interest rates