One means by which a commercial bank may increase the effective cost of a loan is to
1) require an origination fee
2) have the loan paid off in one lump at maturity
3) have the loan discounted in advance

Question

One means by which a commercial bank may increase the effective cost of a loan is to
1) require an origination fee
2) have the loan paid off in one lump at maturity
3) have the loan discounted in advance​

Quizplus · Accepted Answer

Requiring an origination fee (Choice 1) is a common way for banks to increase the effective cost of a loan, as it is an upfront cost that is not included in the interest rate. Discounting the loan in advance (Choice 3) also increases the effective cost of the loan as it reduces the amount of money the borrower ultimately receives. Having the loan paid off in one lump at maturity (Choice 2) does not necessarily increase the effective cost of the loan, as it is a standard loan term. Therefore, the best choice is B, as it includes the two options that increase the effective cost of the loan.

One Means by Which a Commercial Bank May Increase the Effective