Lenders Prefer to Lend to Firms with High Net Worth

question 36

Multiple Choice

Lenders prefer to lend to firms with high net worth because

• A)such firms are usually willing to pay higher interest rates.
• B)the owners of such firms have more to lose if the firm defaults on a loan.
• C)the government requires most bank loans to be made to such firms.
• D)such firms usually are unable to raise funds directly through financial markets.

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Definitions:

Meaning

The significance or interpretation of a word, phrase, sentence, or symbol.

Bonding

The process of creating a secure financial guarantee, typically via a bond, that protects against losses from failure to meet contractual obligations or perform duties.

Fidelity Bond

A form of insurance protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals, often employees.

Surety Bond

A three-party agreement where the surety guarantees to the obligee that the principal will fulfill an obligation or perform as agreed.