Multiple Choice Questions
1. The term annual percentage rate is the same as:
(a) Effective rate
(b) Nominal rate
(c) Annual percentage yield
(d) All of the above
2. An interest rate is an effective rate under all of the following conditions, except when:
(a) The compounding period is not stated
(b) The interest period and compounding period are the same
(c) The interest statement says that the interest rate is effective
(d) The interest period is shorter than the compounding period
3. An interest rate of nominal 12% per year, compounded weekly, is:
(a) An effective rate per year
(b) An effective rate per week
(c) A nominal rate per year
(d) A nominal rate per week
4. An interest rate of 1.5% per month, compounded continuously, is the same as:
(a) An effective 1.5% per month
(b) 4.5% per quarter, compounded continuously
(c) 6.0% per quarter, compounded continuously
(d) 9% per 6 months
5. If you make quarterly deposits for 3 years into an account that compounds interest at 1% per month, the value of n in the F/A factor that will determine F at the end of the 3-year period is:
(a) 3
(b) 12
(c) 36
(d) None of these
6. Identify the following interest rates as nominal or effective.
Rate 1: 1.5% per quarter
Rate 2: 1.5% per quarter, compounded monthly
(a) Both are nominal rates.
(b) Rate 1 is nominal and rate 2 is effective.
(c) Rate 1 is effective and rate 2 is nominal.
(d) Both are effective.