As the degree of risk connected with a loan increases,the difference between the actual rate of interest on the loan and the pure rate of interest

Question

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The actual rate of interest on a loan accounts for the level of risk associated with lending money. As the risk increases, lenders will require a higher rate of return to compensate for that risk. This means that the actual rate of interest will increase above the pure rate of interest. Therefore, the difference between the two rates will also increase.

As the Degree of Risk Connected with a Loan Increases,the