You would be making a wise decision if you chose to:
A)base decisions regarding investments on effective rates and base decisions regarding loans on annual percentage rates.
B)assume all loans and investments are based on simple interest.
C)accept the loan with the lower effective annual rate rather than the loan with the lower annual percentage rate.
D)invest in an account paying 6 percent,compounded quarterly,rather than an account paying 6 percent,compounded monthly.
E)ignore the effective rates and concentrate on the annual percentage rates for all transactions.

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) accounts for compounding, providing a more accurate reflection of the true cost of a loan or the true return on an investment compared to the annual percentage rate (APR), which does not account for compounding.

You Would Be Making a Wise Decision If You Chose