- CFA Exams
- CFA Exam: Level I 2021
- Study Session 11. Corporate Finance (2)
- Reading 35. Working Capital Management
- Subject 5. Managing Short-Term Financing

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**CFA Practice Question**

What is the difference between interest being paid on a discount basis versus a collect basis?

B. The present value of all interest payments are paid up front on a discount basis while the future value of all interest payments are paid at maturity on a collect basis.

C. The interest rate is below prime, or at a discount, when paid on a discount basis; the collect basis occurs when additional interest is charged for excessive loan risk and collected at the maturity of the loan.

A. Interest is deducted from a loan on a discount basis while interest is paid at maturity on a collect basis.

B. The present value of all interest payments are paid up front on a discount basis while the future value of all interest payments are paid at maturity on a collect basis.

C. The interest rate is below prime, or at a discount, when paid on a discount basis; the collect basis occurs when additional interest is charged for excessive loan risk and collected at the maturity of the loan.

Correct Answer: A

Interest is deducted from the loan on a discount basis while interest is paid at maturity on a collect basis.

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