An Increment Above the Prime Rate on a Floating-Rate Loan

question 24

True/False

An increment above the prime rate on a floating-rate loan will be higher than on a fixed-rate loan of equivalent risk because the lender bears higher risk with a floating-rate loan.

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Definitions:

Three Variables

Refers to any analytic scenario, model, or experiment that involves exactly three different variables affecting outcomes.

Compounding Periods

Compounding Periods refer to the frequency with which interest is added to the principal balance of an investment or loan, affecting the total interest earned or paid.

Compound Interest

Interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods, leading to exponential growth.

Interest Rate

The percentage of a sum of money charged for its use, typically expressed on an annual basis, affecting loans, mortgages, savings, and investments.