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Q: ABC Ltd. reports that its sales are growing at the rate of 1.25% per month. DEF Inc. reports sales…

A: Effective rate is the rate after considering the impact of compounding on the growth rate of sales.

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.