The nominal interest rate and the effective interest rate are equivalent when compounding occurs ____.
A) once a year at the end of the year
B) every quarter
C) semiannually
D) monthly

Question

Quizplus · Accepted Answer

When compounding occurs once a year at the end of the year, the nominal interest rate and effective interest rate are equivalent, as there are no interim compounding periods to account for. The effective interest rate differs from the nominal interest rate when compounding occurs more frequently, such as quarterly, semi-annually, or monthly.

The Nominal Interest Rate and the Effective Interest Rate Are