Assume That a Borrower Has a Choice Between Two Comparable

question 29

Multiple Choice

Assume that a borrower has a choice between two comparable fixed-rate mortgage loans with the same interest rate, but different mortgage terms, one being a 30-year mortgage and the other a 15-year mortgage. Under financially unconstrained circumstances, which of the following statements best describes the borrower's preference?

• A) The borrower would prefer the 30-year mortgage.
• B) The borrower would prefer the 15-year mortgage.
• C) The borrower would be indifferent between the two mortgages.
• D) The borrower is unable to compare mortgage loans of two different maturities.

---

Definitions:

Statement Of Financial Position

Financial statement showing a firm’s accounting value on a particular date. Also known as a balance sheet.

Statement Of Comprehensive Income

Financial statement summarizing a firm’s performance over a period of time. Formerly called an income statement.

Quick Ratio

A liquidity metric that measures a company's ability to cover its short-term obligations with its most liquid assets, excluding inventory.

Accounts Receivable

Company receivables originating from goods or services offered to customers who haven't yet completed payment.