An interest rate that has been annualized using compound interest is termed the:
A)simple interest rate
B)Annual percentage rate
C)Discounted interest rate
D)Effective annual interest rate

Question

Quizplus · Accepted Answer

The effective annual interest rate is the interest rate that takes into consideration the compounding of interest over a year. It is therefore the most accurate representation of the true cost of borrowing or the true return on investment. Choices A, B, and C do not take compounding into account and are therefore not as useful for comparing interest rates.

An Interest Rate That Has Been Annualized Using Compound Interest