Chapter 27, Problem 6SCQ

Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan If:

1. The borrower has been late on a number of loan payments
2. Interest rates In the economy as a whole have risen since the bank made the loan
3. The borrower Is a firm that has just declared a high level of profits
4. Interest rates in the economy as a whole have fallen since the bank made the loan