What Is the Effective Annual Interest Rate for a Bank

question 45

Multiple Choice

What is the effective annual interest rate for a bank overdraft with an interest rate of 15% p.a.paid twice a year?

• A)15%
• B)7.5%
• C)16.4%
• D)15.6%

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Definitions:

Interest-Rate Risk

The potential for investment losses due to fluctuations in interest rates, affecting particularly fixed-income securities.

Default Risk

The possibility that a borrower will fail to meet the obligations of a debt agreement.

Perpetuity

A type of annuity that pays a consistent amount indefinitely, with no end date.

Yield

The income return on an investment, such as the interest or dividends received, expressed as a percentage of the investment's cost or current market value.