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Which of the following statements is true? a
Which of the following statements is true?
a. If interest is compounded more than once a year, the nominal annual rate is greater than the effective annual rate.
b. If interest is compounded once a year, the nominal annual rate and the effective annual rate are equal.
c. If interest is compounded more than once a year, the effective annual rate is greater than the nominal annual rate.
d. (a) and (b) are both correct.
e. (b) and (c) are both correct.
Expert Solution
Answer:
(a). is wrong while (b and (c ) are correct because effective annual rate (EAR) is more when compounding is more than once a year.
(b) and (c) are both correct
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