INSTRUCTIONS: Choose the Word or Phrase in [ ] Which

question 82

Short Answer

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement.
The [ nominal | effective ] rate of interest is the annual rate of return that is actually earned during the period the funds are held.

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Definitions:

Effective Rate

The actual interest rate an investor earns or pays on an investment or loan, taking into account the compounding of interest.

Per Month

A recurring or regular interval of payment or calculation that occurs every month.

Strip Bonds

Bonds that have had their principal and coupon payments separated, or "stripped", creating two distinct types of securities: zero-coupon bonds and interest payment coupons.

Compounded Monthly

Refers to the process of adding interest to the principal balance of a loan or investment on a monthly basis, allowing the interest to then earn interest in the subsequent months.