6 Increasing your OR ING leverage (increase in Fixed costs) usually involves an investment in fixed assets. One reason is to increase capacity to meet demand. Another KEY reason to increase leverage is to (think of reason used in text example). A Reduce variable costs B Reduce fixed costs C increase borrowings D Improve profits when Sales are soft 7 Although higher FINANCIAL leverage (debt) increases the amount of interest expense, the offset is: Lower Variable costs B Lower shares outstanding Higher Fixed costs C D Increase in borrowings 8 Based on Expectation Theory, if the yield curve has a positive slope, which Statement is true. Short term rates will be higher in the future. Inflation is expected to decline B C Long term rates are lower than short term rates D Short term rates are expected to be higher in the future. 9 If the current 3 mo.T bill is 2.6% and markets expect it to rise to 5.2% in a year, based on expectation theory, what would be the 1 year fixed Treasury rate (Hint: average of the two)