If You Are a Lender Evaluating a Loan Application and You

question 16

True/False

If you are a lender evaluating a loan application and you calculate the following ratio: (EBIT + Lease Payments)/[Interest + Lease Payments + (Sinking Fund/(1 − T))],then you are calculating a debt service ratio and it should be less than one in order to approve the loan.

Understand the characteristics and purposes of different types of bonds.

Identify the factors that affect bond pricing and issuance conditions.

Recognize the implications of bond terms on corporate financing.

Understand the relationship between bondholders and stockholders in a corporate structure.

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Definitions:

Abnormal Return

The difference between the actual return of an investment and the expected return based on the risk and market's overall returns.

Sales Increase

An upward movement in the quantity sold or the revenue generated from the sale of a product or service over a specific period.

Beta

A measurement of a stock's volatility compared to the overall market volatility, indicating its relative risk.

Annualized Return

Annualized Return indicates the geometric average amount of money earned by an investment each year over a given time period.