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1. The differential between the nominal interest rate of a long-term fixed rate debt instrument and the real rate is

a) the risk premium.

b) the expected rate of inflation.

c) the risk premium plus the expected rate of inflation.

d) none of the above.

2. Assuming nominal interest rates to be the same and the subject loan has a thirty-year maturity, under which of the following scenarios will the yield to the lender the highest?

a) The loan has no points and is prepaid prior to maturity.

b) The loan has no points and is paid at maturity.

c) An origination fee (points) is charged and the loan is fully amortized.

d) An origination fee (points) is charged and the loan is prepaid prior to maturity.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92076864

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