In 2010, Econ Bank Issued Numerous 30-Year, Fixed-Rate Mortgage Loans

question 67

Multiple Choice

In 2010, Econ Bank issued numerous 30-year, fixed-rate mortgage loans at an interest rate of 4.5%. At that time, the price index was 160. Five years later, the borrowers were continuing to make payments on time, and the price index was 150. How are the bank and the borrowers impacted by the changing price level?

• A) The bank gained, and the borrowers were harmed.
• B) The bank was harmed, and the borrowers gained.
• C) Both the bank and the borrowers gained from the lower price level.
• D) Both the bank and the borrowers were harmed by the lower price level.

---

Definitions:

Equivalent Units

A concept in process costing that converts partially completed units into a smaller number of fully equivalent units, facilitating cost assignment.

FIFO Method

The "First In, First Out" method of inventory valuation, where goods first added to the inventory are the first ones to be sold.

Equivalent Units

A concept in cost accounting used to allocate costs to partially completed goods, expressed in terms of fully completed units.

Conversion

The process of changing or causing something to change from one form to another.