As a Result of Compounding, the Effective Annual Rate on a Bank

question 57

True/False

As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or greater than the nominal rate on the deposit (or loan).

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Definitions:

Indifference Curves

Graphical representations of all the combinations of goods and services that provide equal satisfaction to a consumer.

Income

The monetary return or earnings received by an individual or entity, often measured on a regular basis, such as monthly or annually.

Consumption Bundle

A combination of goods and services that a consumer chooses to consume given their budget constraints.

Utility Function

A mathematical representation of how consumers rank different bundles of goods according to their level of satisfaction or utility.