As applied to mortgage loans, which of the following statements is FALSE?
A) Advertised rates are EARs.
B) A spreadsheet uses the periodic interest rate, not the annual percentage rate.
C) It is essential to know the compounding periods per year in order to use the TVM equations or determine the actual cost to rent money.
D) A mortgage problem is very similar to a future value problem with an annuity.

Question

Quizplus · Accepted Answer

Advertised rates for mortgage loans are typically Annual Percentage Rates (APRs), not Effective Annual Rates (EARs). The APR represents the annual cost of borrowing money, including all fees and charges, but it does not take into account the effects of compounding. The EAR, on the other hand, is the actual rate of interest that will be earned or paid on an investment or loan, taking into account compounding over the entire term of the loan.

As Applied to Mortgage Loans, Which of the Following Statements