Reference no: EM132500074

Question 1: Which of the following is an advantage of using equity as a source of funding?

Review Later

1. The cost of equity is usually lower than the cost of credit.
2. It doesn't have additional financial commitments.
3. It's very liquid and always accepted.
4. It won't dilute existing shareholder's value of change ownership percentage.

Question 2: If you borrow $5,000 with 4% interest compounded annually, how much total interest do you need to pay after 2 years?

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1. 412
2. 408
3. 404
4. 400

Question 3: Match the examples of credit with the corresponding categories.

Revolving credit

Installment

Open credit

1. Cell-phone bills
2. Home equity line of credit (HELOC)
3. Car loan

Question 4: Assuming all else is equal, which of the following loans is most likely to have the lowest total interest cost?

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1. Secured amortizing loan
2. Unsecured non-amortizing loan
3. Unsecured amortizing loan
4. Secured non-amortizing loan

Question 5: What is the advantage of a variable-interest loan?

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1. Protects the borrower from rising interest rates
2. Borrower can capitalize on a reference rate decrease
3. Makes it easier for the borrower to plan for future payments
4. Reduces the total interest payments

Question 6: What does underwriting include in the general lending process?

1. Discussing loan amount and interest rate with the borrower
2. Monitoring loan account
3. Assessing the borrower's eligibility for the loan
4. Creating documentation for the borrower to sign

Question 7: Which of the following tools is used to analyze the industry attractiveness in the credit application process?

Review Later

1. Management analysis
2. Ratios analysis
3. PESTEL analysis
4. SWOT analysis

Question 8: What do the liquidity ratios tell you in the financial analysis?

1. The company's ability to pay off debt obligations
2. The efficiency of inventory
3. The profitability of the company
4. The capital structure of a company

Question 9: Which of the following are not part of the 5Cs of credit? Select all that apply.

1. Character
2. Commitment
3. Conditions
4. Collateral
5. Candor

Question 10: In the 5 Cs of credit, what does capacity measure?

1. The management's attitude towards risk and growth
2. The financial structure and overall financial strength of a company
3. The assets available to secure the debt in the event of a default
4. The company's profitability and cash flow to manage operations and growth