Which of the following statements is true? Give all correct answers.
a.
Effective annual rate > annual percentage rate
b. Effective annual
rate = annual percentage rate
c. Effective annual rate < annual
percentage rate
3. When you increase the number of payments per period,
why does the total cash payments times the number of payments in the
period not equal the original single payment for the period? (In other
words, why does twelve times a monthly payment on a loan with a positive
interest rate not equal the required annual payment on the same loan
amount with the same inter- est rate?)
4. Explain why the real interest
rate is the reward for saving.
5. What does the term risk-free interest
mean, and why do we usually use the U.S. Treasury bill yield as the
risk-free rate?
6. Why does a mortgage typically have a lower interest
rate than a car loan?
7.on average, which factor do you think contributes
more to the nomin free rate, inflation or the real rate?
