Question

22. Why are yields on loan sales higher than on commercial paper holding constant for maturity, issue sizes, and risk? A) There is an active secondary market for loan sales but not commercial paper.

B) Banks only sale loans of high credit rated companies.

C) Commercial paper issues are mainly from blue chip companies and thus the credit ratings are typically lower, and monitoring cost is typically higher.

D) All of the above are true

E) None of the above are true

Answer 1

E) None of the above are true

option A is wrong as it says There is an active secondary market for loan sales but not commercial paper. but there is no secondary market for loan sales, and there is secondary market for commercial paper

Option B is wrong because the Banks sales it's less credit rated companies and not the high credit rated companies

Option C is wrong as it says Commercial paper issues are mainly from blue chip companies and thus the credit ratings are typically lower, and monitoring cost is typically higher.but credit rating of blue chip companies are the best in the market .

so all of the options are wrong