2. [Variable vs fixed-rate debt; CFA adapted] Assuming that a firm has variable-rate debt and interest rates rise, describe the effect of the rise on: (i) Net income (ii) The market value of the firm's debt EXHIBIT 10P-1 Selected Balance Sheet Data, December 31, 1998 and 1999 (in $millions) AMR Corp US Airways 1998 1999 1998 1999 Cash and short-term investments $2,073 $1,791 $1,210 Not receivables 1,543 1,134 Inventories 596 708 Other current assets 663 791 Current assets $4.875 $4.424 $2,364 Accounts payable F.152 1,115 Accrued liabilities 2,122 1,956 Air traffic liabihty 2,163 2,255 $ 870 387 226 613 $2,096 474 1,276 635 Notes payable and current portion long-term debt Current habilities 202 $5,639 538 71 116 $5,864 $2,269 $2,501 Source: AMR Corp. and US Airways, 1999 annual reports.