Would It Be Worth It to Incur a Compensating Balance

question 117

Multiple Choice

Would it be worth it to incur a compensating balance of $15,000 in order to get a 2-percent-lower interest rate on a 1-year,pure discount loan of $1,000,000?

• A)Yes
• B)No
• C)Not enough information is given to determine It depends upon whether $1,000,000 × (1 + i) or $1,015,000 × (1 + [i - 0.02]) is larger.The compensating balance for the lower loan rate will make sense if:
• $1,000,000 × (1 + i) > $1,015,000 × (1 + [i - 0.02])
• ($1,000,000/$1,015,000) × (1 + i) > (1 + [i - 0.02])
• 0)9852 + 0.9852i > 1 + i - 0.02
• -0)0148i > -0.0052
• I < 0.35135
• In other words, only if the rate is less than 35.14 percent.Since this is likely to happen, the lower rate associated with the compensating balance is worth it.

Acknowledge the significance of critical perspectives in addressing social problems and power structures.

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Definitions:

Deceptions

Acts of making someone believe something that is not true, often for personal gain or advantage.

Debriefing

A procedure conducted after completing an activity or study, often in research, to inform participants about the study's purpose, answer questions, and address any negative effects.

True Purpose

Refers to the underlying or genuine intention behind an action or existence.

Supportive Friends

Individuals who provide emotional, social, and practical support to someone.