Which of the Following Activities Most Significantly Increases the Risk

question 311

Multiple Choice

Which of the following activities most significantly increases the risk that a bank will make poor-quality loans to its customers?

• A) Borrowers may not sign all required mortgage loan documentation.
• B) Fees paid by the borrower at the time of the loan may not be deposited in a timely manner.
• C) The bank's loan documentation may not meet the government's disclosure requirements.
• D) Loan officers may override the lending criteria established by senior management.

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Definitions:

Retained Earnings

The portion of net income that is retained by a company rather than distributed to its shareholders as dividends.

Coupon Rate

The interest rate on a bond which the issuer pays to the bondholders, generally fixed and paid at specific intervals.

Yield to Maturity

The total anticipated return on a bond if held to its maturity date, including all interest payments and capital gains or losses.

Required Rate of Return

The minimum return an investor expects to achieve by investing in a particular asset, taking into account the risk level of the investment.