Question: Jasper Corporation is requesting a loan for repair of some
Jasper Corporation is requesting a loan for repair of some assembly-line equipment in the amount of $10.25 million. The nine-month loan is priced by Farmers Financial Corporation at a 6.5 percent rate of interest. However, the finance company tells Jasper that if it obtains a suitable credit guarantee the loan will be priced at 6 percent. Lifetime Bank agrees to sell Jasper a standby credit guarantee for $10,000. Is Jasper likely to buy the standby credit guarantee Lifetime has offered? Please explain.
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