A lender holds a 30 year fixed-rate loan at 7% interest. Which of the following is true about that loan 15 years later, when an investor wants to purchase the loan and market interest rates are 9%? The market value of the loan is lower than the book value of the loan because the market rate of Interest is lower than the interest rate on the loan. The market value of the loan is lower than the book value of the loan because the market rate of Interest is higher than the interest rate on the loan. The market value of the loan is higher than the book value of the loan because the market rate of Interest is higher than the interest rate on the loan. The market value of the loan is higher than the book value of the loan because the market rate of interest is lower than the interest rate on the loan.
Added by Andrew S.
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Step 1: First, we need to understand that the market value of a loan is affected by the difference between the interest rate on the loan and the current market interest rates. Show more…
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