Question

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.

Answer 1

D) prime rate plus 4 percent

Step-by-step explanation:

Zebra Productions will now be qualified as a sub-prime customer as it has been slow making payments to its bank. This has made its credit rating and quality lower. The lower credit rated customers are charged sub-prime lending rates which is charging interest rates higher than the prime lending rate ( lower interest rate for good credit rating customers). This is due to the fact that the bank is taking higher risk on the borrower's account and thereby should get higher return for taking higher risk.

Thus, option no. D) prime rate plus 4 percent would be charged to Zebra Productions.