- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 1. Market Organization and Structure
- Subject 1. The Functions of the Financial System
CFA Practice Question
If lenders believe projects will likely produce valuable future cash flows, they may be likely to ______
B. raise the costs of borrowing.
C. ask the borrowers to pledge assets as collaterals for their loans.
A. contribute capital for equity.
B. raise the costs of borrowing.
C. ask the borrowers to pledge assets as collaterals for their loans.
Correct Answer: A
User Contributed Comments 5
| User | Comment |
|---|---|
| Emily1119 | Why a? |
| moneyguy | The lender may be interested in receiving a percentage ownership in the project (contribute capital for equity). This would be a customized lending contract of some sort. |
| johntan1979 | B and C will be the last things a lender will do for a company with bright future prospects. |
| joeclark | I would go to B as "lender" but of course it will be usurious so A is the most apt answer. |
| MathLoser | Produce valuable future cash flows -> lower risk -> no need to raise the costs of borrowing -> no need to ask the borrowers to pledge their assets. |