Which Statement Describes the Rate of Return Expected When Lending

question 37

Multiple Choice

Which statement describes the rate of return expected when lending funds to a firm as compared with the rate when lending to a reputable state?

• A) It must be lower because a lender to a firm cannot expect to not to be exposed to any risk.
• B) It must be higher because a lender to a state cannot expect not to be exposed to any risk.
• C) It must be lower because the term lengths will generally be shorter.
• D) It must be higher because a lender to a firm cannot expect not to be exposed to any risk.

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Definitions:

New Prices

The latest prices for goods or services, updated from previous values due to factors such as inflation, demand, or production costs.

Utility Function

A representation of a consumer's preference ranking over a set of goods and services, quantifying the satisfaction from each possible choice.

Reservation Price

This is another term for reserve price, meaning the lowest price at which someone is willing to sell a good or service.

Tape Recorder

An electronic device used for recording sound on magnetic tape and usually capable of playback.