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Which of the following statements is NOT correct? 1. Generally, the periodic rate is stated in...

Which of the following statements is NOT correct?

1. Generally, the periodic rate is stated in contracts, and quoted by banks and brokers

2. Period rate = nominal rate/m, where m is the number of compounding periods per year

3. The effective annual rate is always greater than the annual nominal rate in any situation

4. Periodic rate is generally used in calculations and shown on time lines

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Answer #1

In this statement two statements are not correct.

Statement (1) and (3)

Generally, the periodic rate is stated in contracts, and quoted by banks and brokers. - Incorrect

The rates quoted by banks are nominal rates and not periodic rates.

The effective annual rate is always greater than the annual nominal rate in any situation Incorrect

The effective annual rate would be equal to the nominal rate in the case of annual compounding.

Periodic rate is equal to nominal rate divided by m. It is correct. This is also correct that on timeline or while using financial calculator, we use periodic rates.

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