When the Federal Government Makes a Direct Loan at an Interest

question 51

Multiple Choice

When the federal government makes a direct loan at an interest rate below the prevailing Treasury rate (a subsidized loan) , an expense should be recorded for which of the following amounts?

• A) The difference between the face value of the loan and the present value of the estimated net cash receipts.
• B) The difference between the present value of the estimated net cash receipts at the stated rate of interest and the present value of the net cash receipts at the prevailing interest rate.
• C) The fair value of the loans.
• D) No expense is recognized.

---

Definitions:

Underwriting

Underwriters (investment bankers) purchase securities from the issuing company and resell them. Usually, a syndicate of investment bankers is organized behind a lead firm.

Investment Banking

A sector of banking focused on helping individuals, corporations, and governments raise capital through underwriting or acting as the client's agent in issuing securities.

IPO

An Initial Public Offering (IPO) is the process by which a private company offers its shares to the public in a new stock issuance to raise capital.

CFA Institute Standards

Ethical and professional guidelines provided by the CFA Institute to its members and candidates, aimed at fostering integrity in the investment industry.