Your Bank Pays a Quoted Annual (Nominal)rate of 12

question 246

Multiple Choice

Your bank pays a quoted annual (nominal) rate of 12%. However, it compounds interest every week (52 times a year) . What is the effective annual rate (EAR) ?

• A)Less than 12%
• B)Exactly 12%
• C)12.01% - 12.35%
• D)12.36% - 12.70%
• E)More than 12.70%

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Definitions:

Annual Inflation Rate

The percentage increase in the price level of goods and services in an economy over a year.

Overestimating

The act of assessing something more highly than its actual value or performance, often leading to errors in judgment or planning.

Structurally Unemployed

Describes individuals who are unemployed due to a mismatch between their skills and the jobs available, often because of technological change or fundamental shifts in an economy.

Pay Cut

A pay cut is a reduction in an employee’s salary or wages, often implemented by employers to reduce costs during financial hardships or organizational restructuring.