Question

When a credit-worthy business takes on an unsecured, short term loan, which kind of interest rate...

When a credit-worthy business takes on an unsecured, short term loan, which kind of interest rate below will it likely be charged?

  • Discount rate

  • Prime percentage rate

  • Annual percentage rate

  • Prime percentage rate plus a percent

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Answer #1

Answer-

The correct Option is last option Prime percentage rate plus a percent

The short term loan will be charged to credit worthy business is an interest rate that increases for customers with more credit risk. As the short term loan fluctuates with the changes in short term interest rates and the customer might have a rate of prime rate plus one basis point which is equal to Prime percentage rate plus a percent.  

The first three Options are incorrect.
Discount rate is used for discounting cash flows
Annual percentage rate is the interest rate paid per year but not used for credit worthy customers.

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