Thomas has a loan with a nominal interest rate of 6.4624% and an effective interest rate of 6.4715%. Which of the following must be true?I. The loan has a duration greater than one year.II. The interest on Thomas’s loan is compounded more than once yearly.III. The economy was strong when Thomas took out the loan.

The effective interest rate (6.4715%) is slightly higher than the nominal rate (6.4624%). That difference occurs when interest is compounded more than once per year, so statement II must be true. The rates do not tell us the loan’s duration or how strong the economy was, so statements I and III are not guaranteed.

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