1. Which of the following statements is most correct?

a. If annual compounding is used, the effective annual rate equals the nominal rate.

b. If annual compounding is used, the effective annual rate equals the periodic rate.

c. If a loan has a 12 percent nominal rate with semiannual compounding, its effective annual rate is equal to 11.66 percent.

d. Answers a and b are correct.

e. Answers a and c are correct

2. You are interested in investing your money in a bank account. Which of the following banks provides you with the highest effective rate of interest?

a. Bank 1; 8 percent with monthly compounding.

b. Bank 2; 8 percent with annual compounding.

c. Bank 3; 8 percent with quarterly compounding.

d. Bank 4; 8 percent with daily (365-day) compounding.

e. Bank 5; 7.8 percent with annual compounding.