Consider two loans that are otherwise identical, except that Loan A has a higher chance of borrower default and Loan B has a lower chance of borrower default. Which loan would you expect to charge more interest-all else equal-and why? O Loan A would charge more interest because it is less risky than Loan B. O Loan A would charge more interest because it is riskier than Loan B. O Loan B would charge more interest because it is less risky than Loan A. O Loan B would charge more interest because it is riskier than Loan A.

Q: Proponents of behavioral finance use three concepts to argue that markets are not efficient. What…

A: Behavioral finance is the field or category of finance that relates to the impacts of psychology on…

Q: If a MNC has short-term financing need, the ideal currency to borrow should have low interest rate…

A: Interest rate effects the exchange rate of currency and exchange rate would change depends on change…

Q: The advantage of a "balloon payment" loan over a conventional loan  repayment plan is:   A. less…

A: Balloon payment is referred as a large lump-sum payment, which is made at the end of the loan period…

Q: Why do federally guaranteed loans usually have the least risk for banks, List some popular…

A: Federal guaranteed loans are loans that are backed by the federal government, which means that the…

Q: You have a choice among three types of loan (discount loan, interest - only loan, and amortized…

A: The objective of the question is to determine whether an amortized loan is the least expensive cost…

Q: Reinvest risk is lowest during a period of low interest rates. Also called clean loans. Is this true…

A: Clean Loan: It is a secured loan that one acquires from the bank either for personal use or business…

Q: The internal rate of return on a mortgage loan calculated from the lender's perspective is more…

A: Discount point is the amount or a part of mortgage amount which the borrower pay at the time of…

Q: 6. pants) One of the analysis techniques we have learned is how to construct a choice table, showing…

A: Here's how borrowing rates can affect which option is preferable:Fixed vs. Variable Interest Rates:…

Q: Explain why it's possible for tranching to make invest ing in a mortgage -backed security more risky…

A: A mortgage-backed security is a type of security which is backed up by mortgage meaning failing to…

Q: In the credit market model with limited commitment, suppose that a consumer's collateral constraint…

A: The credit market model with limited commitment is a framework used to analyze and understand the…

Q: Collateral does not reduce the risk of a loan per se, because A. it is not part of the loan…

A: Collateral = It refers to asset, being pledged by bank against the loan given to its customer in…

Q: Loans Loan Expected Standard Amount Return Deviation A $ 15 8.1% 1.1% million В $ 15 9.2% 1.3%…

A: The following solution is given below:

Q: Banks can hedge the credit risk of their mortgage loans by buying credit default swaps. (Think about…

A: The risk or uncertainty that is present in an investment transaction that the investee will not…

Q: Which equation would not work to find the fixed rate of simple interest on his loan? a) r= Pt b) / =…

A: Simple Interest is considered one of the easiest and simplest methods of calculating interest. Under…

Q: There is a formula that will find the APR, i, of a single payment loan but not for a series of…

A: The term “annual percentage rate (APR)” refers to the annual rate of interest charged to borrowers…

Q: What is discounting? / why do people discours?

A: As per Bartleby guidelines, If multiple questions are posted , only first 1 question will be…

Q: Which of the following situations are likely to result in higher loan defaults?     Mortgages…

A: Loan default implies that borrower is not able to repay debt according to initial predetermined…

Q: What aspect of FHA loans made them particularly attractive to investment companies such as life…

A: FHA loans can be referred as the loans that are ussually required lesser financial obligations and…

Q: What is MOST TRUE of DEFAULT RISK on a mortgage loan? It is always lower with lower interest rates.…

A: Default risk is the risk that a lender assumes when a borrower fails to make mandatory debt…

Q: Direct financing allows a borrower to:

A: Direct financing is a financing approaches in which the borrower (or financer) directly purchases…

Q: Interest costs for short-term debt are generally lower than interest costs for long-term debt…

A: Companies and people use debt to tide over liquidity problems or to get access to funds to buy…

Q: Explain the reason why the wraparound lender should be willing to make the loan at a rate that is…

A: Wraparound mortgage is a type of secondary financing in which the seller extends an additional…

Q: Explain the challenges policymakers face when interest rates are very low.

A: An interest rate is referred to as an amount that is charged over as well as above the principal…

Q: Why might a wraparound lender provide a wraparound loan at a lower rate than a new first mortgage?

A: Introduction: Wraparound mortgage is a type of loan in which loans are given to borrowers, who is…

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.