Thomas has a loan with a nominal interest rate of 6.4624% and an effective interest rate of 6.4715%. Which of the following must
be true? I. The loan has a duration greater than one year.
II. The interest on Thomas’s loan is compounded more than once yearly.
III. The economy was strong when Thomas took out the loan.
Point III is about <em>real interest rate</em> point I doesn't apply since both nominal and effective ir are calculated by year let alone the fact that if you look close to those numbers it would probably mean that the loan had 1year and 1 day duration :)
the II answer is the correct one if the loan is compounded at 6 months you have to add the interest of the first 6 months interest to the total interest to find out the effective interest rate
II. The interest on Thomas’s loan is compounded more than once yearly.
Step-by-step explanation:
If your effective rate is greater than your nominal rate, your loan is compounded more than once yearly. You can' figure out I. and III. with just this information.
