Over the years, Zebra Productions has been slow making payments to its bank. Now it is in need of financing. Based on past experience, the interest rate Zebra will pay is the
A) interest rate determined by the SBA.
B) finance rate determined by the Department of Commerce.
C) prime rate.
D) prime rate plus 4 percent.
E) prime rate minus 2 percentage points.

Question

Quizplus · Accepted Answer

Zebra Productions has a history of slow payments, which indicates a higher risk for the lender. Therefore, the lender is likely to charge a higher interest rate than the prime rate (which is usually reserved for the least risky borrowers). Adding 4 percent to the prime rate is a common practice for lenders as a risk premium.

Over the Years, Zebra Productions Has Been Slow Making Payments