Would It Be Worth It to Incur a Compensating Balance

question 36

Multiple Choice

Would it be worth it to incur a compensating balance of $9,000 in order to get a .70-percent-lower interest rate on a 1-year, pure discount loan of $250,000?

• A) yes
• B) no
• C) not enough information is given to determine The repayment on the $250,000 loan without the compensating balance would be $250,000 x (1 + i), vs. $259,000 x (1 + [i - .007]):
• $250,000 x (1 + i) > $259,000 x (1 + [i - .007])
• ($250,000/$259,000) x (1 + i) > (1 + [i -.007])
• )9653 + .9653i > 1 + i - .007
• -)0347i > .0277
• I < -.7983
• In other words, only if the rate is less than - 79.83%. Since this is not likely to happen, the lower rate associated with the compensating balance isn't worth it.

Identify and interpret correlation coefficients.

Understand the concept of median calculation and its significance.

Distinguish between discretionary and nondiscretionary expenses.

Recognize the impact of outliers on measures of central tendency.

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Definitions:

Social Allergy Effect

A psychological phenomenon where repeated small irritations in close relationships lead to a significant negative reaction.

Annoyed

The feeling of being irritated or bothered by something or someone, often leading to discomfort or frustration.

Habits

Basically, routine behaviors that are performed regularly and often automatically.

Social Allergy Effect

A phenomenon where repeated exposure to certain behaviors or habits of others leads to an increasingly negative and irritated reaction over time.