A borrower who has to pay an interest rate of 8% rather than 6% due to...
A borrower who has to pay an interest rate of 8% rather than 6% due to risk spread will pay?
Homework Answers
ANSWER:
A person who pays 8% instead of 6% will pay 33.3% higher interest in dollar terms.
( ( interest paid now - interest paid earlier) / interest paid earlier) * 100
( ( 8% - 6%) / 6%) * 100
( 2% / 6%) * 100
0.333 * 100
33.3%
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A borrower who has to pay an interest rate of 8% rather than 6%
due to...
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A
B
C
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projects he plans to undertake than does the lender. This
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B) adverse selection.
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9. Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then infla- tion turns out to be higher than they both expected. a. Is the real interest rate on this loan higher or lower than expected? b. Does the lender gain or lose from this unexpectedly high inflation? Does the borrower c. Inflation during the 1970s was much higher than most people had expected when the decade began. How did...
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A
B
C
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1) A borrower who takes out a loan usually has better
information about the potential returns and risk of the investment
projects he plans to undertake than does the lender. This
inequality of information is called
A) moral hazard.
B) asymmetric information. C) noncollateralized risk. D)
adverse selection.
2) If bad credit risks are the ones who most actively seek
loans then financial intermediaries face the problem of
A) moral hazard.
B) adverse selection.
C) free-riding.
D) costly state verification....
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