Choice "A" is correct. Short-term financing options result in lower interest rates but higher interest rate risks because rates will fluctuate more dramatically for short-term issues than long-term issues. On the other hand, with long-term financing, credit risk will decrease because the company will seek refinancing less frequently and thereby have less credit risk or opportunity that the rates associated with debt will be changed unfavorably or that financing will be denied altogether.
Choice "c" is incorrect. Although long-term financing results in decreased credit risk, short-term financing yields increase, not decrease, interest rate risk.
Choice "b" is incorrect. Although short-term financing options result in increased interest rate risk, long-term financing will result in decreased, not increased, credit risk.
Choice "d" is incorrect. Interest rate risk increases, not decreases, for short-term financing and credit risk decreases, not increases, for long-term financing.