Answer (D) is correct . The prime interest rate is the rate charged by commercial banks to their best (the largest and financially strongest) business customers. It is traditionally the lowest rate charged by banks. However, in recent years, banks have been making loans at still lower rates in response to competition from the commercial paper market.
Answer (A) is incorrect because The prime rate has nothing to do with a commitment fee on a bank loan.
Answer (B) is incorrect because The effective rate on most companies’ bank loans will be much higher than the prime rate.
Answer (C) is incorrect because The prime rate is a bank loan rate, not the rate on commercial paper.
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