Question

Which of the following statements is correct?

(I) The annual percentage rate indicates the amount of compound interest earned in one year

(II) The effective annual rate indicates the amount of simple interest earned in one year

(III) High inflation rates are associated with low nominal interest rates

Select one:

a. I and II only

b. II and III only

c. I and III only

d. I, II and III

e. None of the above  

Answer 1

Well,

The answer is( e) - none of the above

This is because,

1. APR does not indicates anything about the compounding interest however it includes fees or additional cost connected with transactions.

2.Effective annual rates indicates compounding interest over a period of time not simple interest.

3. A nominal interest rate means an interest rate without taking inflation into account.

Therefore, above three statements are not correct so none of these is the answer.