When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield?
A) The yield on the loan will increase.
B) The yield on the loan will decrease.
C) The yield on the loan will be unaffected.
D) The yield on the loan automatically becomes zero.

Question

Quizplus · Accepted Answer

Charging discount points means that the borrower is paying more upfront to receive a lower interest rate on the loan. This results in a higher yield for the lender, as they are earning more interest over the life of the loan. Therefore, the yield on the loan will increase.

When Lenders Charge Discount Points (Prepaid Interest) on a Loan