Why Should the Investment Officer Be Concerned About the Loan

question 14

Multiple Choice

Why should the investment officer be concerned about the loan covenants on the company's loans?

• A)they may force the company to invest in high-risk,high-return securities in order to have enough interest revenue to pay the loan's interest expense
• B)they may include fine print forcing the company to engage in illegal activities
• C)they may prohibit certain types and/or amounts of investments
• D)all of the above

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Definitions:

Enforceable Trust

A trust arrangement that meets all legal requirements and therefore can be executed as per its terms.

Legal Capacity

The ability of an individual or entity to enter into binding contracts, sue, and be sued, recognized by law.

Specific Property

Refers to a distinct, identifiable piece of property, as opposed to a general right or interest.

Settlor

A person who creates a trust by providing the initial trust property and setting the terms of the trust.