What kind of interest rate can you expect for the following? 1. A $20 pawnshop l

Question

What kind of interest rate can you expect for the following?

1. A $20 pawnshop loan will have a _____________
a. high rate of interest because it is risk-free
b. low rate of interest because it is risk-free
c. high rate of interest because it is a small loan

2. A 30-year mortgage loan on a $175,000 house will have a ______________
a. high rate of interest because it is risk-free
b. low rate of interest because it is large and uncollateralized
c. low rate of interest because it is large and collateralized

3. A 60-day $100 loan from a personal finance company will have a _____________
a. low rate of interest because it is collateralized
b. low rate interest because it is a small, risk-free loan
c. high rate of interest because it is a small, risky, loan

Explanation / Answer

1. c. high rate of interest because it's a small loan 2. c. low rate of interest because it is large and collateralized 3. c. high rate of interest because it is a small, risky, loan

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