3. You and your friend Harry have started a business. Harry is a technical whiz, but doesn’t know much about business or finance. After several months you’ve been approved for a $100,000 bank loan at what seems to be a rather high interest rate, 16%. Harry is especially bothered by the rate. He thinks banks shouldn’t get any more than 4 or 5%, but doesn’t really know why he feels that way. When you both were about to sign the loan papers, the banker mentioned that a minimum balance of $20,000 would have to remain in the bank. Hearing this, Harry pulled out his calculator and made a calculation at which he became outraged. He then stormed out of the meeting.

Why is Harry so upset? What calculation did he make? Write a short memo explaining banking practices to calm Harry down. Is there a kind of minimum balance requirement that might make Harry’s calculation invalid?