Which of the Following Statements Does Not Reflect a Borrower-Specific

question 72

Multiple Choice

Which of the following statements does not reflect a borrower-specific factor often used in qualitative default risk models?

• A)Reputation is an implicit contract regarding borrowing and repayment that extends beyond the formal explicit legal contract.
• B)A borrower's leverage ratio is positively related to the probability of default over all levels of debt.
• C)Firms with high earnings variance are less attractive credit risks than those firms that have a history of stable earnings.
• D)Loans can be collateralized or uncollateralized.
• E)Reputation is a key reason why initial public offering of debt securities by small firms have a higher interest rate than do debt issues of more seasoned borrowers.

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Definitions:

Glomerular Capsule

A cup-like sack at the beginning of the tubular component of a nephron in the kidney that performs the first step in filtering blood to form urine.

Simple Cuboidal

A type of epithelial tissue with cube-shaped cells, often found lining glands and ducts, playing roles in secretion and absorption.

Simple Squamous

A single layer of flat cells lining surfaces where passive diffusion of gases, liquids, or nutrients occurs.

Macrophages

Large white blood cells that engulf and digest cellular debris, foreign substances, microbes, and cancer cells in a process called phagocytosis.