18. Which of the following statements is CORRECT? a. Loans documented by promiss

Question

18.          Which of the following statements is CORRECT?

                        a.            Loans documented by promissory notes may be secured by specific collateral or secured only by the borrower's general credit strength. If security is used, then long-term loans are likely to be secured by fixed assets, while short-term loans are likely to be secured by accounts receivable or inventories.

                        b.            A promissory note is a document that sets forth the terms under which a firm borrows money. If the note calls for repayment in more than one year, then it is not likely to be secured by any specific collateral. However, collateral generally is required as security for note that mature in more than one year.

                        c.             The interest rate on a promissory note is always fixed. Thus, notes do not have adjustable rates like those often found on mortgages and bonds.

                        d.            Federal regulations as specified in the Bankruptcy Act of 2005 prohibit banks from requiring that a borrower obtain a guarantee from some other party that the third party will repay the loan if the borrower defaults.

Explanation / Answer

b

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