What Effective Annual Rate Can a Bank Earn on an APR

question 24

Multiple Choice

What effective annual rate can a bank earn on an APR of 10.5 percent, compounded monthly?

• A)10.50 percent
• B)10.76 percent
• C)11.84 percent
• D)11.02 percent
• E)13.08 percent

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Definitions:

CCA Rate

Refers to Capital Cost Allowance rate, which is the rate at which a business can claim tax depreciation on certain properties or equipment in Canada.

CCA Class

Canadian Capital Cost Allowance Class; a categorization in Canadian tax law that determines the depreciation rate for tax purposes on different types of assets.

Required Rate

The lowest expected gain an investor aims to receive from an investment in a specific asset, taking into account the associated risk.

Fixed Costs

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