Which of the Following Loan Terms Would Result in the Lowest

question 16

Multiple Choice

Which of the following loan terms would result in the lowest annual cost?

• A)4% compounded annually
• B)4%, compounded monthly
• C)4%, compounded quarterly
• D)4%, compounded daily

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Definitions:

External Costs

Costs generated by production or consumption activities that are not borne by the producer or consumer but by a third party or society at large.

Socially Desirable

Refers to actions or policies that are widely accepted and promoted by society because they are considered beneficial for the majority of its members.

Efficient

An attribute of systems, processes, or devices that use the least amount of inputs to achieve the highest amount of output or desired effect.

MSB

Marginal Social Benefit, referring to the additional benefit to society as a whole from consuming one more unit of a good.