What is the interest rate charged per period multiplied by the number of periods per year called?

Question

BlackTom AI · Accepted Answer

Annual Percentage Rate (APR) is defined as the periodic interest rate multiplied by the number of periods in one year. This is the nominal annual rate (often called APR) that does not account for intra-year compounding.

Relevant concepts:
- Periodic interest rate (r_period): the interest charged for one compounding period (e.g., monthly rate).
- Number of periods per year (m): how many compounding periods occur in a year (e.g., 12 for monthly).
- APR (nominal annual rate): r_nominal = r_period × m.
- Effective Annual Rate (EAR): accounts for compounding and equals (1 + r_period)^m − 1.

Step-by-step reasoning with a numeric example:
1. Suppose the monthly (periodic) interest rate is 1% = 0.01.
2. There are m = 12 months in a year.
3. APR = r_period × m = 0.01 × 12 = 0.12 = 12%.
4. By contrast, the effective annual rate would be EAR = (1 + 0.01)^12 − 1 ≈ 1.126825 − 1 = 0.126825 ≈ 12.6825%—higher because it includes monthly compounding.

Why the correct answer is correct:
- The phrasing “interest rate charged per period multiplied by the number of periods per year” matches the definition of APR (nominal annual percentage rate). APR simply scales the periodic rate to an annual basis without compounding.

Why the other options are incorrect:
- A. Effective annual rate: incorrect because EAR includes compounding and is computed as (1 + r_period)^m − 1, not a simple multiplication.
- B. Periodic interest rate: incorrect because that is the rate per single period, not the annualized product.
- D. Compound interest rate: ambiguous/misleading; compound (effective) rate implies compounding effects, which again is EAR, not a simple multiplication.

Conclusion: The correct choice is C. annual percentage rate. This matches the provided answer.

What is the interest rate charged per period multiplied by the number of periods per year called?单项选择题

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