In a Closed-End Credit Transaction

question 41

Multiple Choice

In a closed-end credit transaction:

• A) the lender makes a series of loans with a maximum amount set before the first loan is made.
• B) if the lender is offering a "teaser rate," this information must be clearly disclosed.
• C) there is only one loan, and the borrower knows the amount and payment schedule in advance.
• D) the Federal Reserve Board should be consulted before a lender is chosen.

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Definitions:

Company's Rate

The rate at which a company borrows or lends money, often specific to its cost of capital or interest rates.

Required Rate

The minimum rate of return on an investment that investors demand, taking into account the investment’s risk level compared to the risk-free rate of return.

Annual Cash Flows

The total amount of money being transferred into and out of a business, captured on a yearly basis, and used to assess the financial health of the entity.

IRR Cross-Over Rate

The rate of return at which two different investments have the same net present value; used in comparing project alternatives.