The nominal rate exceeds the effective rate when the interest is compounded _________ once a year resulting in a larger effective rate.
A)less or equally than
B) equally
C) more or equally than
D) less than
E) more than

Question

The nominal rate exceeds the effective rate when the interest is compounded _________ once a year resulting in a larger effective rate. ​
A)less or equally than
B) equally
C) more or equally than
D) less than
E) more than

Quizplus · Accepted Answer

The statement suggests that the nominal rate exceeds the effective rate when the interest is compounded less than once a year. This is because the more frequently interest is compounded, the higher the effective rate will be, as interest is being earned on previous interest earned. Therefore, if interest is only compounded once a year, the effective rate will be lower than the nominal rate.

The Nominal Rate Exceeds the Effective Rate When the Interest