The best single predictor of the possibility of default on a loan is
A) the amount of equity capital the borrower has in the project.
B) the amount of assets the borrower has.
C) the type of other liabilities the borrower has.
D) the amount of compensating balances the borrower has.

Question

Quizplus · Accepted Answer

The amount of equity capital the borrower has in the project is the best single predictor of the possibility of default on a loan because it reflects the borrower's own investment and commitment to the project, indicating their confidence in its success and their incentive to avoid default.

The Best Single Predictor of the Possibility of Default on a Loan