The pledged assets to secured liabilities ratio
A)Is calculated by dividing book value of secured liabilities by book value of pledged assets
B)Can be calculated from the book value of assets and liabilities
C)Is not relevant to secured creditors
D)Can always be calculated from information provided in the financial statements
E)Is a method of determining if the pledged assets of a debtor will provide adequate security for a creditor

Question

Quizplus · Accepted Answer

The pledged assets to secured liabilities ratio is a method of determining whether the assets pledged by a debtor will be sufficient to cover the amount owed to a creditor. It is calculated by dividing the value of pledged assets by the value of secured liabilities. This ratio is important to secured creditors in assessing the level of risk associated with lending to a debtor who has pledged specific assets as collateral for the loan. Therefore, option E is the correct answer. Options A, B, and D are incorrect because they suggest methods of calculation that do not involve the specific values of pledged assets and secured liabilities. Option C is incorrect because the ratio is relevant to secured creditors.

The Pledged Assets to Secured Liabilities Ratio