Would It Be Worth It to Incur a Compensating Balance

question 53

Multiple Choice

Would it be worth it to incur a compensating balance of $2,000 in order to get a 1.5-percent-lower interest rate on a 1-year, pure discount loan of $100,000?

• A) Yes
• B) No
• C) Not enough information is given to determine

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Definitions:

DuPont Chart

A graphical representation used in financial analysis to display the components of the return on equity formula, helping to understand leverage, operational efficiency, and profitability.

Return on Investment

A measure of the profitability of an investment, calculated by dividing the net profit from the investment by the cost of the investment.

Lead Indicators

Metrics that precede an event and can be used to predict future trends or performance outcomes.

Net Book Value

The value of an asset after accounting for depreciation or amortization, representing its current worth on the balance sheet.