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:

S-R Association

The connection between a stimulus and the response it triggers, fundamental to behaviorist theories of learning and conditioning.

Learning Process

The acquisition of knowledge, skills, behaviors, or preferences, often as a result of study, experience, or teaching, which involves changes in the brain.

Cathexis

The idea that the ability of deprivation states to motivate behavior transfers to the stimuli present during the deprivation state.

Tolman

An American psychologist known for his work on latent learning and cognitive maps in rats and humans.