Question

When calculating the effective rate of a loan, which statement or statements must be true if n is equal to 1?

I. The nominal rate equals the effective rate.
II. The length of the loan is exactly one year.
III. The interest is compounded annually.
a.
I and III
b.
II and III
c.
I only
d.
III only

THE ANSWER IS A ON EDG.

Answer 1

Answer:

The answer is : a. I and III

Step-by-step explanation:

• The effective rate of a loan (let's call it "e") can be calculated as: $e=(1+\frac{i}{n})^n-1$, where "i" is the nominal interest rate, and "n" is the number of compounding periods per year.
• When n equals one (n=1), which means that the number of compunding periods per year equals one (it compounds anually), then $e=(1+\frac{i}{1})^1-1=i$.

• Therefore , the anual nominal rate equals the effective rate ($e=i$) when the interests compund anually.

Answer 2

Answer:

A.

Step-by-step explanation:

because i can