Which of the following is described as the difference between the interest paid to borrow money and the rate of interest that could have been earned for making low-risk investments?

The concept described in the question refers to the “spread,” which is the difference between the cost of borrowing money (the interest paid) and the rate of return that could be achieved from safer, low-risk investments. This term is commonly used in finance to understand the relationship between various rates of return in the market.

For example, if a company borrows money at an interest rate of 5% but could have earned a risk-free return of 3% on a low-risk investment, the spread would be 2%. This difference is important for decision-making in asset management and finance, as it provides insights into the cost of capital and the attractiveness of investment opportunities compared to borrowing costs.

The other terms provided do not directly relate to the defined financial concept. The balloon rate typically refers to a loan that does not amortize fully over its term, requiring a larger final payment. The capitalization rate is used in real estate to indicate the expected return on an investment property based on its income. Effective gross income pertains to the total income generated by a property after adjusting for vacancies and other losses, which is a component of property management rather than a comparison of interest rates.