3. Bankers and bond rating agencies state that when a borrower pledges collateral, the result is lower

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3. Bankers and bond rating agencies state that when a borrower pledges collateral, the result is lower risk on a loan. Empirical research documents that, on average, secured loans carry higher yield spreads than do unsecured loans. Explain the rationale for the belief of bankers and rating agencies. How can this belief be reconciled with the findings of empirical research?

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