Chapter 10

Question 1

what is a syndicated loan

Answer 1

loan provided by group of FIs as opposed to a single lender

Question 2

what is a secured loan

Answer 2

loan backed by collateral incase of default

Question 3

what is an unsecured loan

Answer 3

loan based on character , no collateral

Question 4

what is a non revolving loan

Answer 4

one time loan thats paid in fixed instalments until balance reaches zero (car loan)

Question 5

what is a revolving loan

Answer 5

lets you borrow, repay and borrow again (credit card)

Question 6

what is a covenant

Answer 6

• limits credit risk
  -restrictions written into loan contracts

Question 7

what do these symbols stand for in the expected return of commercial loan formula :
k = (of + (BR + m))/(1-(b(1-RR)))

Answer 7

of = loan originating fees
BR = base lending rate
m= credit risk premium or margin
b=compensating balance
RR= reserve requirement
k= contractual promised gross return or loan

Question 8

what is back end vs front end fees

Answer 8

front end fees: entry fee
back end fee: exit fee, charges on unused portion of loan

Question 9

what does altmans function tell us (Z=1.81)

Answer 9

If score is greater than 1.81 the less probability of default

Question 10

what are the 5 factors that affect the return on a loan

Answer 10

-fees
-premium
-collateral
-interest rate
-other non price terms