The Debt Ratio Is Used to

question 315

Multiple Choice

The debt ratio is used to

• A)Measure the relationship of equity to debt
• B)Describe the risk associated with a company's debts
• C)Is used only by banks when a business applies for a loan
• D)Measure the relationship of equity to debt and describe the risk associated with a company's debts
• E)Describe the risk associated with a company's debts and is used only by banks when a business applies for a loan

---

Definitions:

Nominal Rate

The interest rate stated on a loan or investment agreement, not taking into account the effects of inflation, and often differing from the real rate of interest.

Compounded Semi-annually

An interest calculation method where interest is added to the principal sum of a deposit or loan twice a year, leading to compound interest.

Effective Rate

The effective rate, also known as the annual equivalent rate, is the interest rate on an investment or loan that accounts for the effects of compounding over a given period.

APR

Annual Percentage Rate, which is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, credit card, etc.