Which One of the Following Statements Is TRUE About the Effective

question 29

Multiple Choice

Which one of the following statements is TRUE about the effective annual rate (EAR) ?

• A) The effective annual interest rate (EAR) is defined as the annual growth rate that takes compounding into account.
• B) The EAR conversion formula accounts for the number of compounding periods and, thus, effectively adjusts the annualized interest rate for the time value of money.
• C) The EAR is the true cost of borrowing and lending.
• D) All of the above are true.

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Definitions:

Car Hire Companies

Businesses specializing in renting out automobiles for short periods of time, often varying from a few hours to several weeks.

Auto Repairers

Businesses or individuals specializing in fixing and maintaining vehicles.

Intangible Outputs

Non-physical results produced by an organization or system, such as customer satisfaction, brand reputation, or intellectual property.

Zero Inventories

A business strategy aimed at minimizing holding inventory to reduce storage costs and waste, often relying on just-in-time production methods.