As a Result of Compounding, the Effective Annual Rate on a Bank

question 57

True/False

As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or greater than the nominal rate on the deposit (or loan).

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Definitions:

Z Score

A statistical measurement that describes a value's relationship to the mean of a group of values, measured in terms of standard deviations from the mean.

Standard Normal Distribution

A distribution of a continuous random variable that is normalized, resulting in a mean of 0 and a standard deviation of 1.

Normal Probability Distribution

A standard normal distribution, often used in statistics to represent real-valued random variables of unknown distributions.

Standard Deviation

A criteria used to determine the amount of spread or variation among a group of data values.