Q. Interest on a corporate loan compensates the lender for:
A. risk only.
B. opportunity cost only.
C. both risk and opportunity cost.
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Answer:
B.Opportunity cost only
Explanation:
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Explanation:
Money from a loan that a borrower keeps in an account with a lender providing some surety that the lender will be repaid. A compensating balance is especially common with corporate loans. It increases the cost of capital to the borrower because he/she is paying interest on more money than he/she is permitted to use.
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