Question 330 APR, effective rate, debt terminology
Which of the following statements about effective rates and annualised percentage rates (APR's) is NOT correct?
(a) Effective rates compound once over their time period. So an effective monthly rate compounds once per month.
(b) APR's compound more than once per year. So an APR compounding monthly compounds 12 times per year. The exception is an APR that compounds annually (once per year) which is the same thing as an effective annual rate.
(c) To convert an effective rate to an APR, multiply the effective rate by the number of time periods in one year. So an effective monthly rate multiplied by 12 is equal to an APR compounding monthly.
(d) To convert an APR compounding monthly to an effective monthly rate, divide the APR by the number of months in one year (12).
(e) To convert an APR compounding monthly to an effective weekly rate, divide the APR by the number of weeks in one year (approximately 52).
Copyright © 2014 Keith Woodward