Answer to Question #295855 in Finance for GIGIG

Question

Which one of the following affirmations is false?

a.CAGR is computed by means of geometric average

b. the nominal profit of a financial investment does not involve opportunity cost

c. a t-bill is a rather safe investment alternative

d.geometric average is based on the compounding (interest) rate principle

e. given the same HPR, effective annual rate is always smaller than annual percentage rate

Answer 1

The effective annual rate is normally higher than the nominal rate because the nominal rate quotes a yearly percentage rate regardless of compounding.

So, the statement e is incorrect.