1.Identify and define the borrower-specific and market-specific factors which enter into the credit decision. What is the impact of each factor on the risk premium?

Which of these factors is more likely to affect adversely small businesses rather than large businesses in the credit assessment process by lenders?

How does the existence of a high debt ratio typically affect the risk of the borrower? Is it possible that high leverage may reduce the risk of bankruptcy

(or the risk of financial distress)? Explain.

Why is the volatility of the earnings stream of a borrower important to a lender? LO 10.7 , LO 10.8