Lender makes a $100000 interest-free demand loan to the borrower on jan1 at A TIME when the applicable federal rate is 5 percent. the proceeds of the loan are used to purchase a principal residence for the borrower. five percent interest compounded semiannually on $100000 is 5063 per annum. Consider the tax consequences to both parties at the end of the year if the loan is still unpaid and is in the nature of:

A. A Gift

B. Compensation

C. A dividend