Question

what is a closed line of credit?
a. a line of credit with a set maximum credit limit.
b. a line of credit with no interest rate.
c. a line of credit with a fixed total amount.
d. a line of credit with a legally mandated repayment schedule.

please select the best answer from the choices provided

a
b
c
d

Explanation:

Define closed-end credit

Closed-end credit (often referred to in introductory finance as a "closed line of credit" or closed-end loan) is a type of credit that must be paid back in full by a specified date. Unlike open-end credit (like credit cards), it consists of a fixed total amount of money loaned for a specific purpose.

Analyze the options

• Option a: "A line of credit with a set maximum credit limit." This describes open-end revolving credit (like a credit card or HELOC), which has a credit limit but can be borrowed from repeatedly.
• Option b: "A line of credit with no interest rate." This is incorrect, as closed-end credit typically carries interest.
• Option c: "A line of credit with a fixed total amount." This correctly identifies the core feature of closed-end credit, where a specific, fixed sum is disbursed at the beginning.
• Option d: "A line of credit with a legally mandated repayment schedule." While repayment schedules exist, the defining structural characteristic of the credit itself is its fixed total amount.

Select the best answer

Comparing the choices, option C is the most accurate definition of closed-end credit because it specifies that the total amount of principal is fixed and cannot be dynamically re-borrowed once paid down.

Answer:

• A. A line of credit with a set maximum credit limit.
• B. A line of credit with no interest rate.
• C. A line of credit with a fixed total amount. (Correct answer)
• D. A line of credit with a legally mandated repayment schedule.