Question

Which one of the following statements concerning interest rates is correct?

(A) The stated rate is the same as the effective annual rate.
(B) Banks prefer more frequent compounding on their savings accounts.
(C) The annual percentage rate increases as the number of compounding periods per year increases.
(D) An effective annual rate is the rate that applies if interest were charged annually.
(E) For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.

Answer 1

Answer:A( the stated rate is the same as the annual rate)

Explanation:

Interest rate is the percentage of principal charged by the lender for the use of its money while annual rate describe how much interest you will pay if you borrow for one year.

Answer 2

Answer:

The correct answer is letter "D": An effective annual rate is the rate that applies if interest were charged annually.

Explanation:

The Effective Annual Interest Rate is the interest earned on investment as the result of compounding it over a period. Usually, that period tends to be one (1) year. The Effective Annual Interest Rate is calculated using the following formula:

$R = (1 + \frac{i}{n}) ^{n} - 1$

where:

• R = Effective Annual Interest Rate
• i = Nominal interest rate
• n = number of periods

The Effective Annual Interest Rate helps to compare different types of loans or lines of credits.