Which Account Would Be Preferred by a Depositor: an 8

question 104

Multiple Choice

Which account would be preferred by a depositor: an 8 percent APR with monthly compounding or 8.5 percent APR with semi-annual compounding?

• A)8 percent with monthly compounding
• B)8.5 percent with semi-annual compounding
• C)The depositor would be indifferent
• D)The time period must be known to select the preferred account (1.0667)¹²-1 = 8.3%
• (1)0425)²-1 = 8.68%

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Definitions:

Rate-making Purposes

The process used by regulators to establish fair and reasonable rates charged to customers by utility companies or insurers.

Electrical Grid Substations

Facilities in the electric grid that transform voltage levels between the generating stations and consumers, facilitating the efficient transmission of electricity.

Fixed Charge Coverage Ratio

This ratio measures a company's ability to cover its fixed charges, such as interest and leases, with its earnings before interest and taxes.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's overall financial performance.