A Buyer of a Loan Participation Is Exposed to

question 5

Multiple Choice

A buyer of a loan participation is exposed to

• A)risk exposure to the original borrower defaulting.
• B)risk exposure to the failure of the selling bank.
• C)moral hazard problems because the borrower is no longer monitored by the seller.
• D)Answers A and B only.
• E)Answers A and C only.

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Definitions:

Present Value

The current worth of a future sum of money or stream of cash flows, given a specific rate of return.

Present Value

The present value of a future amount of money or series of cash flows, considering a certain rate of return.

Annuity

A monetary product that ensures a regular payment schedule to its holder, frequently used to secure a livelihood for people in their post-working years.

Compounding

The process whereby interest is credited to an existing principal amount as well as to interest already paid, causing the investment to grow at an accelerating rate.