Author Question: Which of the statements below is FALSE? A) A part of the default premium has to do with the ... (Read 21 times)

Frost2351 · **on:** Jul 10, 2018

Which of the statements below is FALSE?

A) A part of the default premium has to do with the frequency of default by the borrower.
B) For the home loan, the collateral (the house) is an asset that will increase in value over time (in general), compared with a car loan in which the collateral (the car) decreases in value over time.
C) With a car, the potential loss due to default is less than a house because the growing value of the asset should be sufficient to cover the outstanding balance (principal) of the loan.
D) A personal credit card essentially has no collateral, so the potential loss is even higher if the customer defaults on his or her credit card payments.

Question 2

The two major components of the interest rate that cause rates to vary across different investment opportunities or loans are ________.

A) the default premium and the bankruptcy premium
B) the liquidity premium and the maturity premium
C) the default premium and the maturity premium
D) the inflation premium and the maturity premium

brittrenee · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: C
Explanation: C) With a HOUSE, the potential loss due to default is less than a car because the growing value of the asset should be sufficient to cover the outstanding balance (principal) of the loan.

Answer to Question 2

Answer: C