If you are borrowing money, which one of the following rates would you prefer?

Question

Quizplus · Accepted Answer

The interest rate that is simply "paid annually" (A) means that the interest is calculated and added to the principal once a year, without the effect of compounding within that year. Compounding more frequently (semi-annually, quarterly, monthly, or continuously) means that interest is calculated and added to the principal at more regular intervals within the year, leading to a higher effective annual rate due to the compounding effect. Therefore, from the perspective of a borrower who wants to minimize interest payments, a simple annual rate without compounding is preferable.

If You Are Borrowing Money, Which One of the Following