Firm a Has Assets That Are Mainly in Financial Securities

Firm A has assets that are mainly in financial securities and whose liabilities carry variable interest rates; Firm B has the same assets as Firm A and the same amount of liabilities but its liabilities are all at fixed interest rates. If the central bank lowers interest rates, everything else constant:

A) Firm B's net worth will increase more than Firm A's.
B) Firm A's net worth will increase more than Firm B's.
C) Neither firm's net worth will change.
D) The net worth of both firms will increase and by the same amount.

Correct Answer:

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