Question

A contract that is negotiated directly between a borrowing firm and a bank and under which the borrower agrees to make a series of interest and principal payments to the bank on specific dates is called:

a. preferred stock.

b. convertible debt.

c. commercial paper.

d. a bond issue.

e. a term loan.

Answer 1

Answer = E. A term Loan

A term loan is a loan that is provided by bank to borrowing firm in which the borrowing firmhas to repay the loan amount with interest in a predefined tenure with a predefind payment method. Method can be different like Equal monthly installment, Interest payment and principal in bullet pay.

Other option like option A. Preffered stock is invalid as because stock has no obligation of payment,

Option B & D is also inavlid as because Convertible debt is the debt that will be converted in a predefined period of time and bond is a public issue.

Option C commercial paper is an unsecured notes and bank acceptances. It is a generally for short term and been used by two parties in which one parties pay commercial paper to another and such commercial papers is backed by bank gurantee.