The Amount of Security or Collateral on a Loan and the Interest

question 73

True/False

The amount of security or collateral on a loan and the interest rate or risk premium on a loan normally are negatively related.

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Definitions:

Par Value

The face value of a bond or stock, as specified by the issuing company, which does not necessarily reflect its market value.

Legal Capital

The minimum amount of capital that a company is required to maintain for the protection of its creditors.

Stockholders

Individuals or entities that own shares in a corporation, giving them various rights including a claim on part of the company's profits in the form of dividends.

Capital Paid

The total amount of money that investors have contributed to a corporation by purchasing shares of stock, also known as paid-in capital.