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

Question

Quizplus · Accepted Answer

It is generally true that the higher the riskiness of a borrower, the higher the premium charged above the prime rate by a banker. This is because banks want to mitigate the risk of lending to high-risk borrowers by charging a higher interest rate, which helps to compensate for the higher likelihood of default or other losses. Conversely, for low-risk borrowers, banks may charge a lower premium or offer a more favorable interest rate, as these borrowers pose less of a risk to the bank.

The Higher the Riskiness of a Borrower,the Higher Is the Premium