Which of the statements below is FALSE?
A) A part of the default premium has to do with the frequency of default by the borrower.
B) For the home loan, the collateral (the house) is an asset that will increase in value over time (in general), compared with a car loan in which the collateral (the car) decreases in value over time.
C) With a car, the potential loss due to default is less than a house because the growing value of the asset should be sufficient to cover the outstanding balance (principal) of the loan.
D) A personal credit card essentially has no collateral, so the potential loss is even higher if the customer defaults on his or her credit card payments.
Answer: C
Explanation: C) With a HOUSE, the potential loss due to default is less than a car because the growing value of the asset should be sufficient to cover the outstanding balance (principal) of the loan.
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