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When or why would companies prefer to issue long-term bonds over short-term bonds? Choose the correct...

When or why would companies prefer to issue long-term bonds over short-term bonds? Choose the correct answer.

a. When bond investors are seeking lower returns compared to US government bonds.
b. So that they can lock in low interest rates over a longer period.
c. When interest rates are expected to fall in the future.
d. When credit availability is tight.
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Answer #1

The correct answer is B.So that they can lock in low interest rates over long period.

In this era of inflation, where company wants to finance through borrowing by bonds , longterm bonds are more beneficial than short term bonds as company needs funds for long term purpose. It will be cheaper in case of long term bonds as interest is fixed for a specified purpose (say 3,5 or 10 years) and it has obligation to pay interest which is already fixed in the beginning. And this interest (which is comparatively lower as compared to market) is locked in by the company for a longer period.

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