Suppose that over the life of the loan, the total interest expense for a monthly loan is 17,000, while the total interest payment for an annual loan is 19,000. Which of the below statements is FALSE?
A) The difference reflects the reduction of the principal each month versus the annual reduction of the principal.
B) The more frequent the payment, the lower the total interest expense over the life of the loan, even though the effective rate of the loan is higher.
C) Reducing principal at a slower pace reduces the overall interest paid on a loan.
D) Reducing principal at a slower pace increases the overall interest paid on a loan.
Question 2
All of the following are likely to increase the cost of a company's short-term financing EXCEPT
A) an increase in the company's debt rating by Moody's or Standard and Poors.
B) an increase in the compensating balance required.
C) taking a loan on a discount basis.
D) an increase in the bank's prime lending rate.
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