Bank Lending: White Azalea Ltd Is Looking for a Five-Year

question 6

Multiple Choice

Bank lending: White Azalea Ltd is looking for a five-year term loan of $3 million. Its bank is willing to make the loan. The company will have to pay a premium of 1.5 per cent for default risk and another 0.75 per cent for maturity risk. The current prime rate is 7.5 per cent. What is the loan rate on this bank loan?

• A) 9%
• B) 8.25%
• C) 9.75%
• D) 7.5%

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Definitions:

Sherman Antitrust Act

A landmark federal statute passed in 1890 in the United States, which prohibits monopolistic business practices and aims to promote competition.

Sherman Act

A foundational antitrust law in the United States that prohibits monopolistic practices and promotes competition, enacted in 1890.

Monopoly

An exclusive control over the supply of a product or service in a particular market, often eliminating or restricting competition.

ATC Schedule

A table or graph that shows the average total costs for producing different levels of output.