Suppose You Could Borrow $1 Million for One Year at an Interest

question 169

Short Answer

Suppose you could borrow $1 million for one year at an interest rate of 15 percent.You were virtually certain of investing this $1 million for one year and making a profit of $230,000 (from which you would pay the interest you owe).
-Would the deal be acceptable if the interest rate were 12 percent?

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Definitions:

Fixed Costs

Costs that do not change with the level of output or production, such as rent, salaries, and insurance premiums.

Operating Costs

Expenses associated with the day-to-day functioning of a business, including costs for rent, utilities, payroll, and raw materials.

Single Energy Source

The use of one type of energy for powering processes or activities, without reliance on multiple or alternative sources.

Commodity Prices

The market prices for raw materials or primary agricultural products that are traded in bulk on the commodities market.