Suppose Your Firm Is Seeking a Five-Year, Amortizing $900,000 Loan

question 42

Multiple Choice

Suppose your firm is seeking a five-year, amortizing $900,000 loan with annual payments and your bank is offering you the choice between a $950,000 loan with a $50,000 compensating balance and a $900,000 loan without a compensating balance. If the interest rate on the $900,000 loan is 9.5 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) 9.5 percent
• B) 5.56 percent
• C) 7.43 percent
• D) Not enough information is given to determine

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Definitions:

Achievement

Achievement refers to the accomplishment of a goal, task, or challenge through effort, skill, or courage.

Power

Refers to the capacity or ability of an individual or group to influence the behavior of others or the course of events.

Type A Personality

A personality type characterized by competitiveness, urgency, aggression, and an excessive struggle to achieve more in less time.

Heart Disease

Heart disease encompasses a range of conditions affecting the heart, including coronary artery disease, heart attacks, congestive heart failure, and congenital heart defects.