Incorrect Which of the following statements is correct? Selected Answer: Incorrectd. If you were borrowing money from a bank, and the simple interest rate was 10 percent, daily compounding, you would be better off if the bank used a 365-day year rather than a 360-day year. Answers: a. $100 placed in a bank account which pays 6 percent will double faster if the bank pays interest annually rather than daily. b. If you were borrowing money from a bank, and the simple interest rate was 10 percent, you would be better off if the bank used daily rather than quarterly compounding. c. The PV of an ordinary annuity will be larger than the PV of an annuity due, other things held constant. d. If you were borrowing money from a bank, and the simple interest rate was 10 percent, daily compounding, you would be better off if the bank used a 365-day year rather than a 360-day year. Correcte. The effective annual rate will always be greater than the simple rate except in situations where the periodic rate is equal to the simple rate. Response Feedback: Rationale: The effective annual rate must exceed the simple rate unless there is annual compounding. If there is annual compounding, then m = 1, and the periodic rate is equal to the simple rate (because rPER = rSIMPLE/1), and both are equal to the rEAR.