In Canada,the reason an APR cannot be used as a discount rate in a mortgage calculation is
A) because it has a different compounding frequency in a year than the payment frequency in a year.
B) because it has the same compounding frequency in a year as the payment frequency in a year.
C) because it has twice the compounding frequency in a year that the payment frequency in a year has.
D) none of the above

Question

Quizplus · Accepted Answer

The reason an APR cannot be used as a discount rate in a mortgage calculation in Canada is because it has a different compounding frequency in a year than the payment frequency in a year. For example, if the compounding frequency of the APR is monthly but the payment frequency is semi-annually, the APR cannot be used as the discount rate in a mortgage calculation. This is because the compounding effect will not occur at the same intervals as the payments, leading to an inaccurate calculation of the mortgage payments. Therefore, a different discount rate, such as the effective annual rate, must be used to accurately calculate mortgage payments.

In Canada,the Reason an APR Cannot Be Used as a Discount