A loan is advertised at a 15% stated annual interest rate, but the bank compounds interest monthly. Which of the following statements are correct?

Question

Answer

More frequent compounding is always better for the borrower.

Answer

The more frequently interest compounds within a year, the larger the gap between the stated rate and the EAR.

Answer

The Effective Annual Rate (EAR) that the borrower actually pays is higher than 15%.

Answer

If compounding were annual instead of monthly, the EAR would equal the stated rate (15%).

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