Suppose Your Firm Is Seeking a 7-Year, Amortizing $100,000 Loan

question 61

Multiple Choice

Suppose your firm is seeking a 7-year, amortizing $100,000 loan with annual payments and your bank is offering you the choice between a $110,000 loan with a $10,000 compensating balance and a $100,000 loan without a compensating balance. If the interest rate on the $100,000 loan is 7 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

• A) 7 percent
• B) 10 percent
• C) 4.34 percent
• D) Not enough information is given to know

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Definitions:

Data Set

An aggregation of interconnected data sets, which are made up of distinct pieces, yet can be operated on as a single entity by a computer.

Positively Skewed

Positively Skewed, also known as right-skewed, describes a distribution where the tail on the right side of the histogram is longer or fatter than the left side, indicating that the mean and median are greater than the mode.

Negatively Skewed

A description of a distribution of data where the tail on the left side of the distribution is longer or fatter than the right side.

Symmetric

Describes a shape or distribution that is mirrored and evenly balanced around a central point or axis.