Napper Corporation has an existing loan in the amount of $$10$ million with an annual interest rate of $6\mathrm{.}1\%.$

liew the addifionalinformation

Read the requirements. $($Enter amounts in dollars, not millions, throughout.$)$

Requirement a$.$ Explain why the interest rate for the loan that requires a review report is lower than that for the loan that does not require a review. Explain why the interest rate for the loan that requires an audit

report is lower than the interest rate for the other two loans.

The interest rate for the loan that requires a review report is lower than the loan that does not require a review because of the

information risk. A review report provides

assurance to financial statement users. Compared to a review report, an audit provides assurance and thus

information risk. As a result, the interest rate is

for the loan with the audit report.