Which of the following statements concerning the effective annual rate are correct?
I. When making financial decisions,you should compare effective annual rates rather than annual percentage rates.
II. The more frequently interest is compounded,the higher the effective annual rate.
III. A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily.
IV. When borrowing and choosing which loan to accept,you should select the offer with the highest effective annual rate.
A) I and II only
B) I and IV only
C) I, II, and III only
D) II, III, and IV only
E) I, II, III, and IV

Question

Quizplus · Accepted Answer

I, II, and III are correct because:- When making financial decisions, you should compare effective annual rates rather than annual percentage rates because the effective annual rate takes into account the effect of compounding.- The more frequently interest is compounded, the higher the effective annual rate.- A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily.

Which of the Following Statements Concerning the Effective Annual Rate