Long-term debt securities have maturities greater than one year and are typicall

Question

Long-term debt securities have maturities greater than one year and are typically characterized by periodic interest payments. Long-term debt securities can usually be classified as either term loans or bonds. A term loan is a privately arranged contract in which the borrower agrees to make a series of interest and principal payments to a lender, usually a bank, insurance company, or pension fund. A bond is a long-term contract under which the borrowe (issuer) agrees to make interest and principal payments to its bondholders (investors). Term loans and bonds exhibit differing characteristics and advantages. True or False: In general, term loans can be created more quickly than bond issues because they (1) tend to be negotiated directly with the lender, (2) require less formal documentation than bond issues, and (3) are not registered with the Securities and Exchange Commission (SEC). True False True or False: Just like term loans, bond issues do not have to be registered with the Securities and Exchange Commission (SEC). True False

Explanation / Answer

The answer for the first question is true and the reason is mentioned in the question itself. Term loan can be created more quickly than bond issue because:

1. They tend to be negotiated directly with the lender

2. Require less formal documentation as compare to bonds

3. Are not registered with the SEC.

Answer for the question 2 is false because bonds are required to be registered with the SEC.

In general all securities offered in US are required to be registered with SEC or must qualify an exemption from the registration requirement. Bonds are required to be registered. Hence answer is false.

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