Which of the Following Reasons for Considering Long-Term Loans Inherently

question 116

Multiple Choice

Which of the following reasons for considering long-term loans inherently more risky than short-term loans is most accurate?

• A)There is a greater chance that a borrower will default in a longer time-frame.
• B)The penalties for closing out a long-term loan early make them unattractive to many investors.
• C)Long-term loans typically have ongoing costs that accumulate over the life of the loan.
• D)The loan values are very sensitive to changes in market interest rates.
• E)There is a greater chance that an investor will need cash before the loan term is complete.

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Definitions:

Average Rate

A representative value that provides a typical rate or level of something based on aggregated data.

Depreciation Rate

The rate at which an asset loses its value over time, calculated for accounting and tax purposes.

Stem-And-Leaf Plot

A type of graph or data display that shows frequency; the numbers to the left of the vertical line (stem) represent the tens place digit; the numbers to the right of the vertical line (leaf) represent the digits in the ones place, in ascending order.

Median Price

The middle value in a set of prices, with half of the data points being higher and half being lower.