Which of the following sources of short-term financing is likely to have the lowest interest rate?
A) accounts receivable loan (pledging of accounts receivable)
B) line of credit
C) line of credit with a compensating balance
D) commercial paper

Question

Quizplus · Accepted Answer

Commercial paper is typically issued by large corporations with good credit ratings and is considered a low-risk investment for lenders, resulting in lower interest rates compared to other short-term financing options. Accounts receivable loans may have higher interest rates due to the risk involved in collecting on the pledged receivables. Lines of credit may have variable interest rates and may require a compensating balance, which is a minimum balance that must be maintained in the account to avoid fees, resulting in higher overall costs.

Which of the Following Sources of Short-Term Financing Is Likely