X, Y, and Z each borrow $10,000. They agree to repay their loans in full in one year. X borrows his money at 7 percent, compounded monthly. Y borrows his money at 7 percent, compounded annually. Z’s loan has 7 percent simple interest. Given this information, which one of the following statements is correct?   Z will owe less money than either X or Y. Y will have to repay the same amount as Z, but less than X. X will owe less money than either Y or Z. X, Y and Z will owe the same amount one year from now. Y will owe the same amount as X, but less than Z.

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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.