An organization needs to borrow a large amount of cash to fund its expansion plan. Which of the following annual interest rates is least expensive?
A) 7 percent simple interest with a 10 percent compensating balance.
B) 7 percent simple interest paid at the end of each year.
C) 7 percent discount interest.
D) 7 percent compounding interest.

Question

Quizplus · Accepted Answer

Simple interest paid at the end of each year is the least expensive because it does not involve additional costs like a compensating balance or discounting, and it does not compound, which would increase the total interest paid.

An Organization Needs to Borrow a Large Amount of Cash