Loan Capital: Interest - SS2 Accounting Past Questions and Answers - page 1
What is interest in the context of loan capital?
The cost of borrowing money
The amount of money borrowed
The length of time for which the money is borrowed
None of the above
What determines the interest rate charged on loan capital?
The amount of money borrowed
The creditworthiness of the borrower
The term of the loan
All of the above
How does a higher interest rate affect the cost of borrowing?
It increases the total cost of borrowing
It decreases the total cost of borrowing
It has no effect on the total cost of borrowing
None of the above
Who earns a return on loan capital?
The borrower
The lender
Both the borrower and the lender
None of the above
What role does interest play in loan capital?
It allows lenders to earn a return on their investment
It affects the overall cost of borrowing for borrowers
Both a and b
None of the above
What is the formula for calculating interest on loan capital?
The formula for calculating interest on loan capital is Interest = Principal x Rate x Time.
How does the creditworthiness of the borrower affect the interest rate charged on loan capital?
The creditworthiness of the borrower is one of the factors that determine the interest rate charged on loan capital. Borrowers with a good credit history are considered less risky, and therefore, are likely to receive a lower interest rate. Similarly, borrowers with a poor credit history are considered riskier, and therefore, are likely to receive a higher interest rate.