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