boken kap 16 del 1 Flashcards
Q1: What is the main difference between a line of credit and a loan commitment?
A: A line of credit authorizes a maximum loan amount but does not commit the bank to lend, while a loan commitment requires the bank to lend up to a pre-specified amount at a pre-specified interest rate.
Q2: What are the two types of loan commitments?
A: 1. Revolver – funds flow back and forth without a predetermined schedule.
2. Non-revolving loan – the firm cannot pay down the loan and borrow again.
Q3: What is the difference between short-term and long-term debt?
A: Short-term debt (unfunded debt) has a maturity of up to one year, while long-term debt (funded debt) has a maturity of more than one year.
Q4: How does privately placed debt differ from publicly issued debt?
A: Privately placed debt is placed directly with a lending institution, unlike publicly issued debt.
Q5: What is the denomination of a bond?
A: The face value or principal value of the bond.
Q6: What is the par value of a bond?
A: The initial accounting value of the bond.
Q7: What is a bond in bearer form?
A: A bond where ownership is not recorded in the company’s books, and the owner is secret
What is the maturity of a long-term debt?
The length of time the debt remains outstanding
Q8: What is mortgage security?
A: A bond secured by a mortgage on real estate or long-term assets.
Q9: What is a debenture?
A: An unsecured bond without specific collateral backing.
Q10: What is a blanket mortgage?
A: Security involving many assets of the firm.
Q11: What is the purpose of protective covenants in a bond agreement?
A: To limit or specify actions of the borrowing company to protect bondholders.
Q12: What is the difference between a negative covenant and a positive covenant?
A: A negative covenant restricts certain actions by the company, while a positive covenant requires the company to take specific actions or meet conditions.
