What Must the Rate Be Less Than to Be Worth

question 10

Multiple Choice

What must the rate be less than to be worth it to incur a compensating balance of $20,000 in order to get a 2 percent lower interest rate on a one-year, pure discount loan of $200,000?

• A) The rate must be less than 78 percent.
• B) The rate must be greater than 78 percent.
• C) The rate must be greater than −78 percent.
• D) The rate must be less than −78 percent.

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