QUESTION 27

PART A:

Which of the following statements about loan features or additional charges and fees is correct?

a.

a prepayment penalty has no effect on the effective interest rate if the loan is not paid off early

b.

a loan origination fee has no effect on the effective interest rate if the loan is held to term or maturity

c.

loan origination fees and prepayment penalties usually increase the effective return to the bank above the quoted fixed rate on a conventional, amortizing loan

d.

both a and c

e.

both b and c

PART B:

The goal of a bank manager should be to:

a.

maximize shareholder wealth

b.

maximize current earnings

c.

minimize costs

d.

minimize risk

e.

maximize return on average equity