Suppose Your Firm Is Seeking a 5-Year, Amortizing $900,000 Loan

question 23

Multiple Choice

Suppose your firm is seeking a 5-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%
• B) 5.56%
• C) 7.43%
• D) not enough information is given to determine

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Definitions:

Confidence Intervals

A span of numerical estimates generated from a sample that has a good chance of encompassing the actual value of an unspecified population characteristic.

Effect Size

An evaluative figure representing the scale of a condition or the potency of connections between variables.

Sample Size

The number of individual observations or samples included in a study.

Confidence Interval

A cadre of values, from the statistical evaluation of samples, that is designed to encircle the value of an undetermined parameter within a population.