Which of the following is an example of an appropriate loan covenant?
A) The firm must not increase its debt ratio by more than 3 percent.
B) The firm must keep its current ratio above 2.2.
C) The firm must purchase an insurance policy on a key employee.
D) All of the options are examples of appropriate loan covenants.

Question

Quizplus · Accepted Answer

Loan covenants are conditions that lenders put on borrowing agreements to maintain the financial stability of the borrower and ensure the loan is repaid. All the options listed (A, B, C) are examples of such covenants. Option A is a financial covenant related to leverage, option B is a liquidity covenant, and option C is a protective covenant related to risk management.

Which of the Following Is an Example of an Appropriate