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The more often a loan compounds, the higher the interest of the loan will be.
False
True
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GPT-5 mini
AI
True.
For a given nominal annual interest rate r, increasing the compounding frequency n raises the effective annual rate (EAR), computed as (1 + r/n)^n − 1. Example with r = 10%:
- Annual (n=1): EAR = 10.00%
- Monthly (n=12): EAR = (1 + 0.10/12)^12 − 1 ≈ 10.47%
- Daily (n=365): EAR ≈ 10.52%
(If the quoted rate is already the effective rate, changing compounding frequency doesn’t change the interest.)
For a given nominal annual interest rate r, increasing the compounding frequency n raises the effective annual rate (EAR), computed as (1 + r/n)^n − 1. Example with r = 10%:
- Annual (n=1): EAR = 10.00%
- Monthly (n=12): EAR = (1 + 0.10/12)^12 − 1 ≈ 10.47%
- Daily (n=365): EAR ≈ 10.52%
(If the quoted rate is already the effective rate, changing compounding frequency doesn’t change the interest.)
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