The Grass is Greener Company borrows money from a bank. Part of the loan agreeme

Question

The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders equity at least 40% of assets or otherwise to pay a higher interest rate. This requirement is referred to as a: A. Bond rating B. Call feature C. Loan covenant D. Credit rating The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders equity at least 40% of assets or otherwise to pay a higher interest rate. This requirement is referred to as a: A. Bond rating B. Call feature C. Loan covenant D. Credit rating A. Bond rating B. Call feature C. Loan covenant D. Credit rating

Explanation / Answer

Correct answer is option C : Loan Covenant.

Loan covenant are the terms and condition upon which bank or lender will disburse loan to borrower. This condition require borrower to take certain activities or not to do certain activities as a part of loan agreement.

Grass is borrowing from bank for which bank require them to maintain stockholders equity at least 40% of asset or otherwise pay higher interest rate.

This is essentially loan covenant.

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