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

1 months 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

1 months 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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Daren

3 days ago

That's a good point. A could also be a factor to consider in terms of interest rate risk for TYU.

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Carisa

8 days ago

But what about A? If customers' disposable income changes, wouldn't that also impact TYU's business?

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Pansy

16 days ago

I agree, D seems like the most logical choice. TYU's cost of capital will definitely be affected by interest rates.

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Alease

1 months 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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Gretchen

2 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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Tegan

17 days ago

D) TYU's cost of capital will vary with interest rates.

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Percy

1 months ago

A) Customers' disposable income may change.

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Marci

2 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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Lonny

6 days ago

D) TYU's cost of capital will vary with interest rates.

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Ona

7 days ago

B) TYU's competitors may have variable rate borrowings.

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King

11 days ago

A) Customers' disposable income may change.

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Cassie

2 months ago

I think the correct answer is D. TYU's cost of capital will vary with interest rates, so it's exposed to interest rate risk even though it's financed entirely by equity.

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Giovanna

14 days ago

Definitely. It's important for TYU to consider all these factors when managing their interest rate risk.

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Raymon

15 days ago

True, and TYU's competitors having variable rate borrowings could impact their pricing strategies.

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Nan

2 months ago

That makes sense. Customers' disposable income may also change, affecting TYU's sales.

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Cristal

2 months ago

I think the correct answer is D. TYU's cost of capital will vary with interest rates, so it's exposed to interest rate risk even though it's financed entirely by equity.

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