If the Credit Market Is Close to Being a Competitive

question 78

True/False

If the credit market is close to being a competitive market, an interest rate ceiling imposed by usury laws will bring misallocations of resources.

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Definitions:

Compounded Semiannually

Refers to the process of calculating and adding interest to the principal balance of an investment or loan twice a year.

Strip Bond

A fixed-income security derived from the separation of the coupons from the principal of a bond, which are then sold separately as zero-coupon bonds.

Compounded Semiannually

A method of calculating interest where the accrued interest is added to the principal sum and interest is then calculated on the new total twice a year.

Monthly Compounded

Interest calculation in which the interest is added to the principal balance monthly, allowing earnings to increase at a faster rate compared to annual compounding.