Having a _______ interest rate will increase the total cost of an asset when buying on credit.

• A. lower
• B. zero
• C. higher
• D. fixed

Answer: (C)

Verified step by step guidance

1. Understand the concept of interest rate: In financial accounting, the interest rate is the percentage charged on the principal amount borrowed. A higher interest rate means more cost incurred over time when buying on credit.
2. Analyze the relationship between interest rate and total cost: The total cost of an asset purchased on credit includes the principal amount and the interest accrued over the repayment period. A higher interest rate increases the interest portion, thereby increasing the total cost.
3. Consider the options provided: Evaluate each option ('lower', 'zero', 'higher', 'fixed') in terms of its impact on the total cost of an asset purchased on credit.
4. Focus on the correct option: A 'higher' interest rate directly increases the total cost because the interest charged on the borrowed amount is greater.
5. Conclude the reasoning: The correct answer is 'higher' because it aligns with the principle that higher interest rates lead to higher total costs when buying on credit.