What Are the Risks to the Borrower with Adjustable-Rate Loans

question 120

Multiple Choice

What are the risks to the borrower with adjustable-rate loans?

• A)During times of inflation your salary may increase during the term of the loan.
• B)That the market rates of interest may increase during the term of the loan.
• C)It is harder to budget for loan payments that may increase during the term of the loan.
• D)Both B and C are correct.

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Definitions:

Sustainable Growth

The rate at which a company can grow its sales, profits, and dividends without having to increase equity or debt financing.

Dividend Payout Ratio

A financial metric that indicates the percentage of a company's earnings paid out to shareholders in the form of dividends.

Current Assets

Assets of a company that are expected to be sold, consumed, or converted into cash within one year or within the normal operating cycle of the business.

Average Collection Period

A metric that calculates the average time taken to receive payments from customers, indicating the efficiency of a company's credit and collection policies.