An interest rate that has been annualized using compound interest is termed the:
A) discount factor.
B) annual percentage rate.
C) discounted interest rate.
D) effective annual interest rate.

Question

Quizplus · Accepted Answer

The effective annual interest rate is the annualized rate of return that considers the effect of compounding. It takes into account the interest earned on previously earned interest, resulting in a higher rate than the annual percentage rate (B). The discount factor (A) is a calculation used in present value analysis, and the discounted interest rate (C) is not a commonly used term in finance.

An Interest Rate That Has Been Annualized Using Compound Interest