Firms typically borrow from banks, insurance companies, and other financial institutions by signing a note, which specifies the terms of the borrowing arrangement.The initial valuation of the loan equals _____.

Question

Quizplus · Accepted Answer

The initial valuation of the loan is based on the present value of the future cash payments discounted at the yield required by the lender, as it is the lender who is providing the funds and hence requiring a yield or interest rate in return.

Firms Typically Borrow from Banks, Insurance Companies, and Other Financial