The APR on a loan must be equal to the effective annual rate when:
A) compounding occurs monthly.
B) compounding occurs annually.
C) the loan is for less than one year.
D) the loan is for more than one year.

Question

Quizplus · Accepted Answer

The APR and the effective annual rate will be equal when compounding occurs annually. If compounding occurs monthly, the effective annual rate will be higher than the APR due to the effect of compounding more frequently. If the loan is for less than one year, the effective annual rate cannot be calculated as it assumes compounding over a full year. If the loan is for more than one year, the effective annual rate may be different than the APR if the interest rate or compounding frequency changes over time.

The APR on a Loan Must Be Equal to the Effective