joemoran

First of all B is only the correct answer if they are asking for the 'true economic' effect on the D-E ratio. A change in market interest rates does not change the book value of the liability reported on the company's financial statements, and therefore does not change the company's reported D-E ratio.

To answer your question, you're confusing a financing liability (when a company issues a bond) with a financial asset (when a company owns a bond and classifies it as HTM).

You have be very careful when reading questions my man. Good luck!