When Lenders Charge Discount Points (Prepaid Interest) on a Loan

question 15

Multiple Choice

When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield?

• A) The yield on the loan will increase.
• B) The yield on the loan will decrease.
• C) The yield on the loan will be unaffected.
• D) The yield on the loan automatically becomes zero.

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, where holders typically have voting rights and may receive dividends.

Acquisition Transaction

The process where one company takes control of another company by purchasing a majority of its stock or assets.

Contingency Payment

A payment that is due only upon the occurrence of a specific event that is not certain to happen.