When giving an unsecured loan, what might a bank require?
What will be an ideal response?
Answer: The bank requires the borrower to maintain a compensating balance, and the borrower must keep a portion of the loan amount on deposit with the bank in a non-interest-bearing account. Firms with bad credit scores typically cannot get unsecured loans. Because access to such loans requires a good credit history, many firms establish a relationship with a commercial bank and over time build a good credit record by repaying loan principal and interest on time.
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Assume you are to receive a 10-year annuity with annual payments of $1000. The first payment
will be received at the end of Year 1, and the last payment will be received at the end of Year 10. You will invest each payment in an account that pays 9 percent compounded annually. Although the annuity payments stop at the end of year 10, you will not withdraw any money from the account until 25 years from today, and the account will continue to earn 9% for the entire 25-year period. What will be the value in your account at the end of Year 25 (rounded to the nearest dollar)? A) $48,359 B) $55,340 C) $35,967 D) $48,000
Pacific Motors Inc. plans to issue $3,000,000 of commercial paper with a 6-month maturity at 98% of par value. What is the discounted selling price of the firm's commercial paper?
A) $3,000,000 B) $2,940,000 C) $2,700,000 D) $2,666,667