Which of the following statements is correct about a corporation that borrows from its bank at "Prime plus 1 percent"? The interest rate:
A) is set at a level of the prime rate at initiation of the loan, plus 1 percent.
B) can fluctuate up to 1% upward over the life of the loan.
C) can be changed upward but not downward over the life of the loan.
D) can be changed upward or downward in accordance with prime rate changes over the life of the loan.

Question

Quizplus · Accepted Answer

"Prime plus 1 percent" means that the interest rate is tied to the prime rate, meaning that it can fluctuate based on changes in the prime rate. Therefore, the correct statement is that the interest rate can be changed upward or downward in accordance with prime rate changes over the life of the loan.

Which of the Following Statements Is Correct About a Corporation