Would a Depositor Prefer an APR of 8% with Monthly

question 29

Multiple Choice

Would a depositor prefer an APR of 8% with monthly compounding or an APR of 8.5% with semiannual compounding?

• A) 8.0% with monthly compounding
• B) 8.5% with semiannual compounding
• C) The depositor would be indifferent.
• D) The time period must be known to select the preferred account.

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Definitions:

Pretax Income

The amount of income earned by a business before taxes are deducted.

Fixed Costs

Expenses that do not change with changes in the volume of production or sales, such as rent, salaries, and insurance.

Variable Costs

Costs that vary directly with the level of production or sales activity.

Contribution Margin Ratio

A financial metric that shows the portion of sales revenue that is not consumed by variable costs and is available to cover fixed costs.