Which of the following is true?

Question

Quizplus · Accepted Answer

The statement "the more risky the loan, the higher the interest rate charged, ceteris paribus" is a fundamental principle of finance known as the risk-return tradeoff. Lenders require a higher return (interest rate) to compensate for the higher risk they are taking on. The other options are incorrect: A) is not necessarily true, as a major corporation may have a lower risk profile than an individual with high debt-to-income ratio, for example. C) is the opposite of the risk-return tradeoff and does not make sense. D) is incorrect, as the duration of a loan is a key determinant of the interest rate, with longer-term loans typically carrying higher rates.

Which of the Following Is True