A Single-Payment Loan Is Advantageous Only If

question 146

Multiple Choice

A single-payment loan is advantageous only if

• A) the interest rate is less than on an installment loan.
• B) funds will be available to repay the lump sum.
• C) figured with discount method.
• D) figured with simple interest method.
• E) it is unsecured.

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Definitions:

SML Approach

Refers to the Security Market Line approach, a graphical representation in the Capital Asset Pricing Model (CAPM) that depicts the relationship between risk and expected return for all securities.

Flotation Costs

Expenses incurred by a company in issuing new securities, including legal, administrative, and underwriting fees.

Computed NPV

The calculated Net Present Value based on a specific discount rate and series of cash flows.

Perpetual Cash Flows

Cash flows that are expected to continue indefinitely without an end.