A manufacturing firm wants to obtain a short-term loan and
has approached several lending institutions. All of the potential
lenders are offering the same nominal interest rate, but the terms
of the loans vary. Which of the following combinations of loan
terms will be most attractive for the borrowing firm?

(a) The requirement is to identify the loan with the
most favorable terms. Answer (a) is correct because simple interest
with no compensating balance is the most favorable terms
from an effective interest basis. Answers (b), (c), and (d) are
incorrect because discount interest and/or a compensating balance
increase the effective interest rate on the loan.