When the Debtor Sets Aside Money in a Trust Such

question 85

Multiple Choice

When the debtor sets aside money in a trust such that the investment and any return will be sufficient to pay the principal and the interest to the creditor, but the creditor does NOT release the company from the primary obligation to settle the debt, this type of arrangement is known as

• A) in substance defeasance.
• B) in substance refunding.
• C) substantive repayment.
• D) legal defeasance.

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Definitions:

Yield

The income return on an investment, such as the interest or dividends received, expressed as an annual percentage of the investment cost.

Original Maturity

The fixed term length at the issuance of a bond or other fixed-income security until it reaches its due date for the repayment of the principal.

Current Yield

Current yield is the annual income (interest or dividends) divided by the current price of the security.

Coupon Rate

The percentage of interest returned by a bond annually, measured against its face value.