Question

Which of the following statements relating to leveraged loans are least likely true?

		A leveraged loan is a type of loan extended to companies or individuals that already have considerable amounts of debt and/or a poor credit history
		Lenders consider leveraged loans to carry a higher risk of default, and as a result, are less costly to the borrowers
		Leveraged loans have higher interest rates than typical loans, which reflect the increased risk involved issuing the loans
		A leveraged loan is structured, arranged, and administered by at least one commercial or investment bank

Answer 1

Answer-

The second statement is False. All the remaining three statements are True.

The second statement is False. Lenders consider leveraged loans to carry a higher risk of default, and as a result, are more (not less) costly to the borrowers.

The first statement is True. A leveraged loan is a type of loan extended to companies or individuals that already have considerable amounts of debt and/or a poor credit history.

The third statement is True. Leveraged loans for firms or individuals have higher interest rates than typical loans. These higher rates reflect the higher level of risk involved in issuing the loan.

The fourth statement is True. A leveraged loan is structured, arranged, and administered by at least one commercial or investment bank. These banks are arrangers and may sell the loan which is known as syndication to other banks or investors to lower the risk to lending institutions.