In Order to Minimize Complications, All Loans to and from Family

question 5

Multiple Choice

In order to minimize complications, all loans to and from family members should

• A)be in writing
• B)state the interest rate, if there is an interest rate
• C)include a repayment schedule
• D)include the final payment date
• E)all of these should be included

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds; it is the price paid for the use of borrowed money, or, for corporations, the price paid for the use of borrowed capital.

Payout Ratio

A financial metric that measures the proportion of earnings a company pays to its shareholders in the form of dividends.

Net Income

Net income is the total profit of a company after all expenses and taxes have been deducted from total revenue.

Retained Earnings

Profits that a company keeps after dividends have been paid out, which may be used for investment or to pay off debt.