If interest rates fall,a customer's loan rate will decline more rapidly under the times-prime method than under the prime-plus method of business loan pricing.

Question

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Under the times-prime method, the customer's loan rate is directly linked to the current prime rate, so any decline in the prime rate will lead to a corresponding decline in the customer's loan rate. In contrast, under the prime-plus method, the loan rate is determined by adding a fixed percentage (the "spread") to the prime rate, so changes in the prime rate may not have an immediate impact on the loan rate. Therefore, if interest rates fall, the customer's loan rate will decline more rapidly under the times-prime method than under the prime-plus method.

If Interest Rates Fall,a Customer's Loan Rate Will Decline More