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:

Dick's Sporting Goods

An American sporting goods retail company offering a wide range of sports equipment, apparel, and footwear.

Year-Round Inventory

Year-round inventory refers to the practice of maintaining a consistent stock of inventory throughout the year to meet demand without significant fluctuations.

Seasonal Sports

Sports activities that are played or take place primarily in certain seasons of the year, such as skiing in winter or baseball in summer.

Selling

The process of persuading someone to purchase a product or service, involving various techniques to close sales.