If a bank pays 5 percent compounded daily,the true rate of interest is greater than 5 percent.

Name: If a bank pays 5 percent compounded daily,the true rate of interest is greater than 5 percent.
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Question

Quizplus · Accepted Answer

Compounding daily results in more frequent compounding periods, which increases the effective annual rate (EAR) of interest. Therefore, the true rate of interest will be greater than the stated 5 percent annual rate.

If a Bank Pays 5 Percent Compounded Daily,the True Rate