CFI CBCA LOAN PRICING QUESTIONS WITH DETAILED
VERIFIED AND 100% ACCURATE ANSWERS
Loan Pricing Course Objectives Correct Answers -Explain debt as a
funding source, its pros, and its cons
-Identify loan types and their relative degree of profitability
-Define risk-adjusted return and risk-adjusted return on capital
-Calculate and interpret an example risk rating
-Recommend pricing structures based on risk rating and loan type
Capital Structure Correct Answers Assets = Debt + Equity
Debt = Revolving Credit, Term Loans, CMTGs
Equity = Shareholder Loans, Preferred Shares, Common Shares
Debt Pros: Correct Answers • Non-dilutive
• Increases return on equity
• Someone else's money
• Interest is tax deductible
Debt Cons: Correct Answers • Risky; must be repaid
• Restrictive (covenants and reporting)
• Creditors have the most senior ranking claim
Equity Pros: Correct Answers • More flexible
• Can be easier to access
,• Possible strategic reasons
Equity Cons: Correct Answers • Capital is "at risk"
• Third-party equity is dilutive
• Potentially gives up voting rights and control
Enterprise value is the Correct Answers total value of a company - the
equity plus the debt less any cash on hand. For publicly traded
companies, it's the market value of the equity plus the book value of the
debt. For private companies, it's the book value of both.
Secured vs. Unsecured Loans Correct Answers Cost of Financing and
Risk positively correlated
Debt can be broken down into two categories Correct Answers secured
and unsecured loans. While all credit is secured by a general security
agreement, some credit is more secured than others.
Secured Loans Examples Correct Answers Commercial Mortgage
Equipment Capital Lease
Unsecured Loans Example Correct Answers Acquisition Finance
Unsecured credit typically results in a shorter amortization period and
lower levels of leverage extended.
, Secured vs. Unsecured Loans Cost of financing and risk Correct
Answers Secured then Unsecured
Debt Repayment Profile
Principal vs. Time Correct Answers Amortizing Repayment
Balloon Repayment
Bullet Repayment
Pay-in-Kind Repayment
Debt Repayment Profile
Cost of Financing vs Risk Correct Answers Amortizing (Well-defined
payment schedule)
Balloon
Bullet
Pay-in-Kind
Capital Stack Correct Answers Senior Debt
Subordinated Debt
Equity
Senior Debt
Secured 3.5-7%
Highest Priority on Claims..
Increasing Subordination Correct Answers Senior Debt
VERIFIED AND 100% ACCURATE ANSWERS
Loan Pricing Course Objectives Correct Answers -Explain debt as a
funding source, its pros, and its cons
-Identify loan types and their relative degree of profitability
-Define risk-adjusted return and risk-adjusted return on capital
-Calculate and interpret an example risk rating
-Recommend pricing structures based on risk rating and loan type
Capital Structure Correct Answers Assets = Debt + Equity
Debt = Revolving Credit, Term Loans, CMTGs
Equity = Shareholder Loans, Preferred Shares, Common Shares
Debt Pros: Correct Answers • Non-dilutive
• Increases return on equity
• Someone else's money
• Interest is tax deductible
Debt Cons: Correct Answers • Risky; must be repaid
• Restrictive (covenants and reporting)
• Creditors have the most senior ranking claim
Equity Pros: Correct Answers • More flexible
• Can be easier to access
,• Possible strategic reasons
Equity Cons: Correct Answers • Capital is "at risk"
• Third-party equity is dilutive
• Potentially gives up voting rights and control
Enterprise value is the Correct Answers total value of a company - the
equity plus the debt less any cash on hand. For publicly traded
companies, it's the market value of the equity plus the book value of the
debt. For private companies, it's the book value of both.
Secured vs. Unsecured Loans Correct Answers Cost of Financing and
Risk positively correlated
Debt can be broken down into two categories Correct Answers secured
and unsecured loans. While all credit is secured by a general security
agreement, some credit is more secured than others.
Secured Loans Examples Correct Answers Commercial Mortgage
Equipment Capital Lease
Unsecured Loans Example Correct Answers Acquisition Finance
Unsecured credit typically results in a shorter amortization period and
lower levels of leverage extended.
, Secured vs. Unsecured Loans Cost of financing and risk Correct
Answers Secured then Unsecured
Debt Repayment Profile
Principal vs. Time Correct Answers Amortizing Repayment
Balloon Repayment
Bullet Repayment
Pay-in-Kind Repayment
Debt Repayment Profile
Cost of Financing vs Risk Correct Answers Amortizing (Well-defined
payment schedule)
Balloon
Bullet
Pay-in-Kind
Capital Stack Correct Answers Senior Debt
Subordinated Debt
Equity
Senior Debt
Secured 3.5-7%
Highest Priority on Claims..
Increasing Subordination Correct Answers Senior Debt
