Final answer:
An open-end credit example is a home equity line of credit (HELOC). Bonds and bank loans both involve raising capital and making regular payments, but differ in their tradeability and repayment. Initial home equity is equal to the down payment made, such as Eva's $20,000 equity on a $200,000 house.
Step-by-step explanation:
Understanding Open-End Credit
An example of an open-end credit is a home equity line of credit (HELOC). This type of credit allows homeowners to borrow money against the equity of their home, up to a certain limit, and to withdraw funds as needed. It differs from a home equity loan, mortgage loan, or boat loan, all of which are examples of closed-end credit, where the borrower receives a lump sum upfront and repays the loan over a set period with fixed payments.
To compare, a bond from a firm's perspective is similar to a bank loan in that both are ways to raise capital and require the firm to make regular interest payments. However, they differ in terms of the repayment structure, regulatory requirements, and how they are traded in the financial markets. A bank loan is typically not traded, whereas a bond can be bought and sold in the secondary market.
As for calculating home equity, if Eva just bought a house for $200,000 with a 10% down payment, her initial equity would be the down payment amount, which is $20,000. This is because equity is defined as the value of the property that the owner actually owns, which, right after purchase, would be the down payment.