To compensate for the uncertainty of future interest rates and the greater default risk for longer term loans,the lender generally:
A) charges a higher rate of interest on long-term loans.
B) includes a very high number of restrictive debt provisions.
C) is entitled to change the terms of the loan at any time.
D) is entitled to demand repayment of the loan at any time.

Question

Quizplus · Accepted Answer

Charging a higher rate of interest on long-term loans is a common way for lenders to compensate for the uncertainty of future interest rates and the greater default risk for longer term loans. This higher interest rate helps to protect the lender from potential losses and provides an incentive for borrowers to repay the loan in a timely manner. Options B, C, and D are not commonly used by lenders as a means of compensating for risk and uncertainty associated with long-term loans.

To Compensate for the Uncertainty of Future Interest Rates and the Greater