A manufacturing firm wants to obtain a short-term loan and has approached several lending institutions. All of the potential lenders are offering the same nominal interest rate but the terms of the loans vary. Which of the following combinations of loan terms will be most attractive for the borrowing firm?

Simple interest, no compensating balance.
Discount interest, no compensating balance.
Simple interest, 20% compensating balance required.
Discount interest, 20% compensating balance required.