Question

Which one of the following is correct regarding the APR? Multiple Choice The APR considers all...

Which one of the following is correct regarding the APR?

Multiple Choice

  • The APR considers all the effects of compounding.

  • The APR is best used to compare offers from various lenders.

  • The APR is greater than the effective annual rate.

  • The APR formula for rate disclosure is [1 + (r/m)]m-1.

  • The APR is the rate which lenders are required to disclose.

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Answer #1

APR is annual percentage rate that the lender discloes at the time of loan or other credit agreement.

APR does not consider the effect of compounding. It is the effective annual rate that considerst the effect of compounding as well as it used to compare offers from various lenders. APR cannot be considered to comare offers from various lenders.

APR Is always less than or equal to effective annual rate. It cannot be greater than effective annual rat.e.

Expression of EAR disclosure formula is  [1 + (r/m)]m-1. It is not for APR.

So the correct answer is e, The APR is the rate which lenders are required to disclose.. All other options are wrong

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