Which of the Following Statements Regarding Loan Collateral Is True

question 3

Multiple Choice

Which of the following statements regarding loan collateral is true?

• A) Loans secured by collateral always have higher finance charges than unsecured loans.
• B) Collateral is an item of value used to secure the principal portion of a loan.
• C) Collateral is always required by banks to lend to customers with good credit ratings.
• D) Collateral is an item of value used to secure the interest portion of a loan.
• E) Loans are secured by collateral that is readily marketable at a price high enough to cover the interest portion of the loan.

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Definitions:

Capital Markets

Financial markets where long-term debt or equity-backed securities are bought and sold, facilitating the raising of capital.

Risk And Return

The principle that the potential return on any investment is directly correlated with the amount of risk taken; higher risks typically offer the chance for greater rewards.

Average Variance

The mean of the squared deviations from the mean of a data set, indicating its volatility or variability.

Investment Period

The investment period is the duration over which an investment is held before it is sold or liquidated.