The interest rate that helps determine the interest rates charged on other loans is called the:

• A. Coupon rate
• B. Prime rate
• C. Discount rate
• D. Effective annual rate

Answer: (B)

Verified step by step guidance

1. Understand the concept of the 'Prime rate': It is the interest rate that commercial banks charge their most creditworthy customers, typically large corporations. This rate serves as a benchmark for determining interest rates on other loans.
2. Differentiate between the given options: The 'Coupon rate' refers to the annual interest rate paid on a bond's face value, the 'Discount rate' is the interest rate charged by central banks on loans to commercial banks, and the 'Effective annual rate' accounts for compounding within a year.
3. Recognize that the 'Prime rate' is widely used as a reference point for setting interest rates on various types of loans, including personal loans, mortgages, and credit cards.
4. Note that the 'Prime rate' is influenced by the federal funds rate, which is set by the Federal Reserve in the United States, and it fluctuates based on economic conditions.
5. Conclude that the correct answer is 'Prime rate' because it directly impacts the interest rates charged on other loans, serving as a foundational benchmark.