Question9 A credit foncier loan has: periodic interest and principal repayments when the company decides to repay periodic interest payments with a service fee payable at inception periodic interest and principal repayments when cash flows from a project begins to appear periodic interest payments and principal repaid at maturity periodic equal repayments of interest and principal throughout the term ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

Question restatement: The prompt asks about the repayment structure of a credit foncier loan and provides five option statements. The options are:
1) periodic interest and principal repayments when the company decides to repay
2) periodic interest payments with a service fee payable at inception
3) periodic interest and principal repayments when cash flows from a project begins to appear
4) periodic interest payments and principal repaid at maturity
5) periodic equal repayments of interest and principal throughout the term

Option 1 analysis: This implies discretionary timing of both interest and principal payments. In typical loan structures, repayments are governed by a contract, not the borrower’s unilateral decision at arbitrary times. This makes the statement inconsistent with standard amortizing loan mechanics.

Option 2 analysis: This describes interest payments plus a service fee paid upfront. While some arrangements might include fees, the core repayment pattern is not characterized by a one-time inception fee paired with ongoing interest-only payments. It does not define regular amortizing payments.

Option 3 analysis: Repayments triggered by the appearance of project cash flows suggest payments depend on external project timing rather than a predetermined schedule. Credit foncier loans generally have a defined repayment schedule, not contingent cash-flow triggers, so this is unlikely to describe the standard structure.

Option 4 analysis: Interest and principal repaid at maturity is a bullet or balloon loan pattern, where all principal is paid at the end. This contrasts with the idea of ongoing periodic repayments and does not align with typical amortizing loan formats.

Option 5 analysis: Describes periodic equal repayments of interest and principal throughout the term, i.e., level payments that cover both interest and principal (amortizing loan). This is the hallmark of standard amortizing loans such as many credit foncier arrangements, ensuring regular, predictable payments over the term.

Summary of incorrect options: Each of options 1–4 portrays a repayment structure that deviates from the conventional amortizing schedule. They either rely on borrower discretion, upfront fees with ongoing interest-only periods, contingent cash-flow triggers, or end-of-term balloon payments, none of which provide the steady, equal periodic amortization characteristic described in option 5.

Summary of correct option: Periodic equal repayments of interest and principal throughout the term reflect the typical amortizing loan structure used in credit foncier financing, where each payment covers both interest due and a portion of the principal, resulting in a consistent payment amount over the life of the loan.

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