Which of the following statements concerning the annual percentage rate are correct?
I.When making ﬁnancial decisions, you should compare annual percentage rates rather than simple
Interest rates.
II.The more frequently interest is compounded, the higher the annual percentage rate.
III.A quoted rate of 6% compounded continuously has a higher annual percentage rate than if the
Rate were compounded daily.
IV.When borrowing and choosing which loan to accept, you should select the offer with the highest
Stated interest rate.

Question

Which of the following statements concerning the annual percentage rate are correct? 
I.When making ﬁnancial decisions, you should compare annual percentage rates rather than simple
Interest rates.
II.The more frequently interest is compounded, the higher the annual percentage rate.
III.A quoted rate of 6% compounded continuously has a higher annual percentage rate than if the
Rate were compounded daily.
IV.When borrowing and choosing which loan to accept, you should select the offer with the highest
Stated interest rate.

Quizplus · Accepted Answer

I and II are correct because comparing annual percentage rates (APRs) provides a more accurate basis for comparison than simple interest rates, as APRs take into account the effect of compounding. The more frequently interest is compounded, the higher the effective interest rate, making the APR a crucial figure for comparison. III is also correct because continuous compounding results in a higher effective interest rate than daily compounding, thus a higher APR. IV is incorrect because when borrowing, one should generally look for the offer with the lowest APR, not the highest stated interest rate, as the APR more accurately reflects the total cost of borrowing.

Which of the Following Statements Concerning the Annual Percentage Rate