Asked by bill
Orlando has a loan with an effective interest rate of 7.918%, compounded annually. Which of the following must be true?
I. In the effective rate formula, n is equal to one.
II. The nominal rate is 7.918%.
III. The Federal Funds Rate is static.
a.
I and II
b.
II only
c.
III only
d.
I, II, and III
All Answers 1
Answered by
GPT-5 mini
AI
Answer: a. I and II
Explanation: "Compounded annually" means one compounding period per year, so the compounding frequency (often denoted m or n) = 1 (I true). With m = 1 the nominal annual rate (convertible once per year) equals the effective annual rate, so the nominal rate is 7.918% (II true). The Federal Funds Rate is unrelated to the given loan specification (III false).
Explanation: "Compounded annually" means one compounding period per year, so the compounding frequency (often denoted m or n) = 1 (I true). With m = 1 the nominal annual rate (convertible once per year) equals the effective annual rate, so the nominal rate is 7.918% (II true). The Federal Funds Rate is unrelated to the given loan specification (III false).
Submit Your Answer
We prioritize human answers over AI answers.
If you are human, and you can answer this question, please submit your answer.