Which One of the Following Statements Concerning Interest Rates Is

question 105

Multiple Choice

 Which one of the following statements concerning interest rates is correct?

• A) Savers would prefer annual compounding over monthly compounding given the same annual percentage rate. 
• B) The effective annual rate decreases as the number of compounding periods per year increases. 
• C) The effective annual rate equals the annual percentage rate when interest is compounded annually. 
• D) Borrowers would prefer monthly compounding over annual compounding given the same annual percentage rate. 
• E) For any positive rate of interest, the annual percentage rate will always exceed the effective annual rate. 

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Definitions:

Vertical Equity

A concept in taxation that argues taxpayers with a greater ability to pay taxes should pay more, compared to those with a lesser ability to pay.

Marginal Tax Rate

The tax rate that applies to the last dollar of the tax base (income or wealth) earned.

Average Tax Rate

The ratio of total taxes paid to total income, representing the percentage of income that goes to taxes.

Income

The money received by a person or household from various sources like work, investments, or benefits, typically used for consumption, savings, and investing.