Posts tagged "investment"

debt financing definition

Definition of "premium lemon?

Something related to debt financing of investment, and the phenomena of selection opposition

Imagine the situation where a small number of bank capital, decides to securitize a portion of their loans by issuing bonds backed by these loans. A rational investor demand for bonds is looking a better return on their bonds that are paid to bank loans. This difference is called "Lemon award." The reason is that the banker is supposed to know their customers better than the investor, and therefore bad loans to customers shit more likely to fail (lemons) in the collateral pool and retain the best (sweet) the bank loans.