Credit Terms Must Include

question 405

Multiple Choice

Credit terms must include:

• A) the principal of a debt
• B) the interest rate, if any, that applies
• C) the payment dates
• D) all of the other specific choices
• E) none of the other specific choices are necessary, but are commonly used

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Definitions:

Default Risk

The possibility that a borrower fails to meet the legal obligations or conditions of a debt.

Liquidity Risk

Refers to the uncertainty of a company's ability to meet its short-term financial commitments due to an inability to convert assets to cash quickly without significant loss.

Inflation Rates

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Maturity Risk

The risk that arises from the uncertain future value of investments that have a fixed earnings rate and a fixed maturity date.