A bank quotes one of its corporate customers a loan at prime plus 4 percentage points when prime is 12 percent. Another bank, posting the same prime rate, quotes this same customer a loan at 1 1/4 times prime. Which loan would you recommend the corporation to take? Suppose both loans carry floating rates. Prime increases to 16 percent. Which loan is the better deal? Which would be the better deal if prime rises to 18 percent?
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