if two loans have the same nominal rate but different compounding frequencies, then: a. the effective...
if two loans have the same nominal rate but different compounding frequencies, then:
| a. |
the effective rate will have a compounding frequency equal to the frequency of the nominal rate. |
|
| b. |
the loan which charges interest more frequently must have the higher effective rate. |
|
| c. |
the loans will have the same effective annual rates. |
|
| d. |
the effective rate will be lower than the nominal rate for both loans. |
|
| e. |
the loan with more frequent compounding will have a lower effective rate. |
Homework Answers
| if two loans have the same nominal rate but different compounding frequencies, then: | ||||
| a. | ||||
| the effective rate will have a compounding frequency equal to the frequency of the nominal rate. | ||||
| b. | ||||
| the loan which charges interest more frequently must have the higher effective rate. | ||||
| c. | ||||
| the loans will have the same effective annual rates. | ||||
| d. | ||||
| the effective rate will be lower than the nominal rate for both loans. | ||||
| e. | ||||
| the loan with more frequent compounding will have a lower effective rate | ||||
| Period | Nominal Rate | Nominal Rate/ Period | Effective Rate = effective(Nominal rate, period) | |
| Annual | 1 | 8.00% | 8.00% | 8.00% |
| Semi-Annual | 2 | 8.00% | 4.00% | 8.16% |
| Quarterly | 4 | 8.00% | 2.00% | 8.24% |
| Monthly | 12 | 8.00% | 0.67% | 8.30% |
| Daily | 365 | 8.00% | 0.02% | 8.33% |
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if two loans have the same nominal rate but different
compounding frequencies, then:
a.
the effective...
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