Which of the following types of loans will require you to borrow the highest amount in order to obtain the use of $4,000?

Question

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Discount interest with a 5% compensating balance requires you to borrow more than the actual amount you receive because you must leave a portion of the loan (5% in this case) in the account as a compensating balance, in addition to paying interest upfront. This effectively reduces the usable amount from the loan, requiring a higher initial loan amount to net $4,000 for use.

Which of the Following Types of Loans Will Require You