Suppose Your Firm Is Seeking a 7-Year, Amortizing $100,000 Loan

question 61

Multiple Choice

Suppose your firm is seeking a 7-year, amortizing $100,000 loan with annual payments and your bank is offering you the choice between a $110,000 loan with a $10,000 compensating balance and a $100,000 loan without a compensating balance. If the interest rate on the $100,000 loan is 7 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) 7 percent
• B) 10 percent
• C) 4.34 percent
• D) Not enough information is given to know

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Definitions:

Probes

Instruments or tools used to explore, investigate, or measure something within the body or in scientific research.

Dilating/Probing

A medical procedure involving the expansion of a body part or cavity for examination or treatment purposes, often accompanied by inserting a probe to investigate further.

Clamps

Tools used in medical procedures to compress blood vessels or hold tissues in place.

Dilating/Probing

A technique used to widen or investigate body cavities for diagnostic or therapeutic purposes.