Which of the following statements concerning the effective annual rate are corre

ID: 2781541 • Letter: W

Question

Which of the following statements concerning the effective annual rate are correct?

I. A quoted rate of 4.5% compounded semiannually has a lower effective annual rate that a quoted rate of 4.5% compounded quarterly.

II. The more frequently interest is compounded, the lower the effective annual rate.

III. A quoted rate of 6% compounded daily has a higher effective annual rate than if the rate were continuously compounded.

IV. When borrowing and choosing which loan to accept, you should select the offer with the lowest 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

b. I and IV only

the above is the answer

II. is incorrect as more frequently interest is compounded, the higher the effective annual not lower.

III. is incorrect as continuoulsy compouding has higher effective rate than daily.

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