One Reason Suggesting That Banks May Be Better Than Individuals

question 17

Multiple Choice

One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks:

• A) can shift loan risk to their deposit customers.
• B) are motivated by the potential for profit.
• C) do not have any income tax liability.
• D) have information to evaluate creditworthiness.

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Definitions:

Market Index

A theoretical portfolio of investments representing a segment of the financial market, used as a benchmark to measure the performance of investments.

P/E Ratio

The Price to Earnings ratio, a valuation metric for stocks calculated by dividing the market price per share by its earnings per share.

Earnings Growth Rate

The annual rate of growth of a company's earnings per share, indicating the company's profitability trend over time.

Required Return

The minimum return an investor expects to achieve on an investment to compensate for its risk.