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:

Ungenerous Person

An individual who is not willing to give or share things, especially money, freely or in a way that shows kindness.

Subjective Utility

An individual's perceived value or satisfaction obtained from choosing a particular action, often used in economic and psychological models of decision making.

Expected Value

Is the predicted value of a variable, calculated as the sum of all possible values each multiplied by the probability of its occurrence.

Service Contract

A legally binding agreement between two or more parties where one agrees to provide a specified service to the other for a payment.