Which of the following statements related to interest rates are correct?
I.Annual interest rates consider the effect of interest earned on reinvested interest payments.
II.When comparing loans,you should compare the effective annual rates.
III.Lenders are required by law to disclose the effective annual rate of a loan to prospective borrowers.
IV.Annual and effective interest rates are equal when interest is compounded annually.

Question

Quizplus · Accepted Answer

Statement II is correct because the effective annual rate (EAR) accounts for compounding and provides a true comparison of loan costs. Statement IV is correct because when interest is compounded annually, the nominal and effective rates are the same. Statement I is incorrect because annual interest rates do not inherently consider reinvestment; that's a feature of compound interest. Statement III is incorrect as lenders are typically required to disclose the annual percentage rate (APR), not necessarily the EAR.

Which of the Following Statements Related to Interest Rates Are