Explain the difference between a secured and an unsecured loan, and the interest rate you would expect to see charged on each (all other factors equal).
What will be an ideal response?
A secured loan is a loan that is backed by collateral. For example, with a mortgage the property serves as the collateral or in the case of most auto loans, the automobile is the collateral that secures the loan. The lender has the right to seize the collateral in the event of default and the sale of the collateral will eliminate or minimize the losses from default. The collateral greatly reduces the risk from both adverse selection and moral hazard. Unsecured loans, like credit card debt, are not backed by collateral. Since unsecured loans present greater risk they usually carry higher interest rates.
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In a payoff matrix for a three-player game, there are three payoffs in each cell. The third payoff goes to the column player
Indicate whether the statement is true or false
What is a legal barrier to entry?
What will be an ideal response?
A bond that pays a high interest rate
A. is more secure than one that pays a low interest rate. B. is guaranteed by the U.S. government. C. reflects the higher risk that the issuer will default. D. will sell for a high price.
What is the difference between the short run and the long run as economists define the two?