11-64 Which of the Following Statements Does Not Reflect a Borrower-Specific

question 93

Multiple Choice

11-64 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:

Energy Flow

The movement of energy through a food chain or ecosystem, typically from the sun through producers to consumers and finally to decomposers.

Trophic Level

The position an organism occupies in a food chain, based on its feeding relationships, ranging from primary producers to apex predators.

Ecosystem

A community of interacting organisms and their physical environment.

Community

A group of interacting living organisms sharing a populated environment.