Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders. Therefore, lenders charge higher rates to borrowers judged to be more at risk of going bankrupt. True / False.

Question

Business

Brenda Gillespie

10 January, 04:16

Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders. Therefore, lenders charge higher rates to borrowers judged to be more at risk of going bankrupt. True / False.

+4

Answers (1)

Know the Answer?

Rocketfuel · Answer 1

True.

Explanation:

Usually all the lenders are dependent on some form of risk pricing and they charge higher rate of interest from the borrowers who has more risk of bankruptcy. The borrowers who has more risk of default will give more interest for same amount as compared to the borrower having less risk of default.

So based on the above discussion, the statement given in the question is True.