Higher the riskiness of a borrower, higher is the premium charged above the prime rate by a banker.

Name: Higher the riskiness of a borrower, higher is the premium charged above the prime rate by a banker.
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Question

Quizplus · Accepted Answer

This statement is true. When a borrower is considered to be risky, the banker may charge a higher interest rate above the prime rate to compensate for the increased risk of default. This is known as a risk premium.

Higher the Riskiness of a Borrower, Higher Is the Premium