Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
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Prime rate is conventionally more than 6% above fed funds rate.
True
False
Expert Solution
Introduction
Commercial banks charge a different rate to their most creditworthy clients and that rate is referred to as prime rate. The federal funds rate serves as the basis for the prime rate. To get the current prime rate, banks typically multiply the fed funds rate by 3. Personal, small business and mortgage loan interest rates are all based on the prime rate. The most creditworthy borrowers typically pay the prime rate, while less creditworthy borrowers receive the prime rate plus a percentage based on their credit score.
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