Detailed Answer
(c) The requirement is to define the prime rate of interest.
Answer (c) is correct because the prime rate of interest is the
rate financial institutions charge their customers with the highest
credit rating. Answer (a) is incorrect because a commitment fee
is not related to the rate of interest. Answer (b) is incorrect because
the effective rate on the bank loans of most firms is greater
than the prime rate. Answer (d) is incorrect because the rate at
which a bank borrows from the Federal Reserve central bank is
the discount rate.
