Different borrowers have different risks of bankruptcy, and if a borrower goes bankrupt, its lenders will probably not get back the full amount of funds that they loaned. Therefore, lenders charge higher rates to borrowers judged to be more likely to go bankrupt. a. Trueb. False

Question

Rylee Benitez

Business

10 September, 07:19

Different borrowers have different risks of bankruptcy, and if a borrower goes bankrupt, its lenders will probably not get back the full amount of funds that they loaned. Therefore, lenders charge higher rates to borrowers judged to be more likely to go bankrupt. a. Trueb. False

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Jocelyn Downs · Answer 1

Answer: True

Explanation: In simple words, interest rate on borrowings from a bank by an individual or other entity depends on a number of factors such as amount of borrowing, time period for borrowing and the ability to repay.

Bankruptcy refers to the situation when the entity who has borrowed money from any source do not have sufficient fund to pay back.

Thus, bankruptcy factor directly impacts the ability to pay the lender. Hence if the chances of bankruptcy is high banks will surely charge higher interest rate from the borrower.