Section 16.3 Review

What is short-term debt capital as described in the learning material?

• A long-term financial obligation that lasts for more than five years.

• A loan that must be repaid with interest within a year.

• A type of equity financing.

• A financial strategy that does not involve borrowing.

What does a line of credit allow a borrower to do?

• Invest in long-term stocks without any financial limit.

• Borrow up to a specified maximum amount for a specified period of time.

• Obtain funds without any interest.

• Secure funds for purchasing real estate only.

What is a promissory note?

• A legal document that requires no repayment.

• An unconditional written promise to pay a certain sum of money at a specified time or on demand under certain conditions.

• A type of public bond issued by the government.

• A verbal agreement to perform services.

What is often used as collateral in debt agreements?

• A promissory note

• A government license

• Something of value owned by the company

• A personal guarantee

What is trade credit in business terms?

• A loan provided by a financial institution

• Credit extended by a supplier allowing delayed payment for goods and services

• A credit line secured by a mortgage

• Immediate payment required for purchasing goods

What role does a factor play in business finance?

• Provides investment advice to businesses

• Specializes in collecting bad debts

• Lends money to businesses based on their accounts receivable

• Offers insurance services to businesses

What is the purpose of a term loan?

• To cover short-term operational costs

• To finance personal expenses

• For operating funds or improvement of fixed assets

• To invest in stocks and bonds

What is a bond in the context of long-term debt capital?

• A short-term investment made by businesses.

• A long-term debt instrument sold by the business to investors.

• A type of equity share in a company.

• A government grant provided to businesses.

What distinguishes a debenture from other types of bonds?

• It is secured by specific long-term assets of the issuer.

• It is a short-term debt instrument.

• It is an unsecured bond.

• It allows conversion into shares.

What is a mortgage bond?

• A bond that is unsecured and backed by the issuer's reputation.

• A bond secured by specific long-term assets of the issuer.

• A bond that can be converted into common stock.

• A bond issued by the government to support housing.