Item 18The prime lending rate of commercial banks is an announced rate and is often understated from the viewpoint of even the most credit-worthy firms. Whichone of the following requirements always results in a higher effective interest rate?Select the correct response:O A covenant that restricts the issuance of any new unsecured bonds during the existence of the loan.O A floating rate for the loan period.The imposition of a compensating balance with an absolute minimum that cannot be met by current transaction balances.The absence of a charge for any unused portion in the line of credit.

The prime lending rate is a type of interest rate which commercial banks charge the most…

The prime lending rate of commercial banks is an announced rate and is often understated from the viewpoint of even the most credit-worthy firms. Which one of the following requirements always results in a higher effective interest rate? Select the correct response: A covenant that restricts the issuance of any new unsecured bonds during the existence of the loan. A floating rate for the loan period. The imposition of a compensating balance with an absolute minimum that cannot be met by current transaction balances. The absence of a charge for any unused portion in the line of credit.

The prime lending rate of commercial banks is an announced rate and is often understated from the viewpoint of even the most credit-worthy firms. Which one of the following requirements always results in a higher effective interest rate? Select the correct response: A covenant that restricts the issuance of any new unsecured bonds during the existence of the loan. A floating rate for the loan period. The imposition of a compensating balance with an absolute minimum that cannot be met by current transaction balances. The absence of a charge for any unused portion in the line of credit.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Banks tend to focus their loans in one industry so that they can specialize on that industry and reduce the credit risk of their loan portfolio. Group of answer choices: True False
Which of the following statement is TRUE? Select one: O a. None of the other options is correct. O b. Losses on real estate loans are first compensated by the investors in commercial paper issued by the financial institution. O c. In a syndicated loan, a group of lenders shares the return, but not the default risk of the loan Od. When a bank gives a secured loan, the bank has first claim on specific assets of the borrower in the event of a default. Oe. When the repayment probability of a loan is equal to zero, the financial institution investing in this loan faces low credit risk.
When the market interest rate on a short-term note receivable is greater than the stated rate, ________. Group of answer choices the present value of the note is greater than its stated value the stated value of the note is greater than its face value the stated value of the note is less than its face value the present value of the note is less than its face value
Why is it that oftentimes banks refuse to lend to many borrowers even though they offer high interest rates? To reduce the exposure to diversification risk. To reduce the exposure to interest rate risk. To reduce the exposure to credit risk. To reduce transactions costs To reduce the free-rider problem.
With open market operations, the federal reserve sets the interest rate it lends to banks. Ture or false
Which statement best describe subprime loans? a.Loan issued to high-risk borrowers with poor credit ratings b.Loans priced below the prime lending rate c.Loans issued to low-risk borrowers with poor credit ratings d.Loan issued to high-risk borrowers with strong credit ratings
What are the main differences in the underwriting guidelines between Freddie Mac and FHA loans?
When a lender refuses to make a loan, although borrowers are willing to pay the stated interest rate or even a higher rate, the bank is said to engage in strategic holding out. collusive behavior. coercive bargaining. credit rationing.
1. Which of the following is not a way in which banks lend short-term unsecured loans? Choices: By sending the amount earned from trust and investment products offered by the bank Through a guaranteed credit line that has a commitment fee for any unused amount for the year Through credits cards lines with a certain credit limit By lending a single date maturity loan to a debtor 2. The following are methods of acquiring funds through long-term financing, except Choices: Issuing bonds with semi-annual coupon payment at a discounted price Selling equity securities at an amount above the par value indicated in the stock certificate Issuing a note that indicates a promise to pay the indicated supplier in a future date Selling equity securities with a characteristic of both debt and equity security 3. Which is false about long-term sources of a firm's capital? Choices: Preferred shares are securities whose intrinsic value is based on prospective earnings All types of…
What kind of interest rate swap would a commercial bank with a negative re - pricing gap (that is, rate sensitive assets is less than rate sensitive liabilities) utilize to hedge rate risk exposure (that is, would the commercial bank enter into an interest rate swap to make floating rate payments and receive fixed rate payments)? Explain
Which of the following is FALSE regarding ARM loans? ○ Lenders only originate ARMs if the expected benefit from shifting interest rate risk is greater than the increased risk of borrower default caused by adjusting composite rates none of the answer choices is FALSE ARMs with shorter term index means increased risk to borrower because shorter term index rates have more volatility ARMs with more frequent adjustments to the composite rate are more risky to lenders than ARMs with less frequent adjustments

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