Corporate Banking Interview Practice Test

LTV measures how much of the collateral’s value is being financed by the loan. It’s calculated as the loan amount divided by the appraised value of the collateral, usually shown as a percentage. This ratio shows the portion of the collateral that is encumbered by the loan, helping lenders gauge risk: a higher LTV means less equity cushioning and greater potential loss if the borrower defaults or the collateral’s value falls. In collateral analysis, maintaining a prudent LTV helps determine loan terms and potential pricing.

The other options don’t fit because they either invert the ratio, use a metric like annual sales that isn’t about collateral value, or describe a debt-service versus cash-flow metric (a debt service coverage ratio) rather than collateral value-based leverage.