Which of the following defines the costs related to borrowing funds?

The term that specifically defines the costs related to borrowing funds is interest cost. When an entity borrows money, it typically agrees to pay back the principal amount plus additional charges, which are referred to as interest. This interest serves as compensation to the lender for the risk taken and the use of their funds during the loan period. As such, interest cost is a crucial component in municipal finance as it directly impacts the total expense involved in the borrowing process.

In the realm of finance, net worth refers to the total assets minus total liabilities of an entity, which does not specifically address the costs incurred from borrowing. Operational cost involves ongoing expenses for running a business but lacks the specificity to borrowing costs. Equity loss deals with the reduction in the value of equity investments or stakeholder equity but is not related to borrowing funds at all. Therefore, interest cost is the clear and accurate term that identifies the financial burden associated specifically with loans or borrowed funds.