In a Leveraged Buy Out (LBO)the Leverage Is Usually Collateralized

question 46

Multiple Choice

In a Leveraged Buy Out (LBO) the leverage is usually collateralized by:

• A)there is no collateral, that's why it's "leveraged."
• B)the firm's assets.
• C)the new owner's personal assets.
• D)stockholder's equity.

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Definitions:

Maturity

The date on which the principal amount of a financial instrument, such as a bond or loan, becomes due and is repaid to the investor.

Nominal Rate

The interest rate before adjustments for inflation, which reflects the percentage change in money supply but not the purchasing power.

Real Rate

The real rate is the rate of interest an investor expects to receive after allowing for inflation, reflecting the actual purchasing power of the returns.

Inflation Rate

The speed at which the overall price level of goods and services increases, leading to a reduction in buying power.