Final answer:
The correct statements related to interest rate are that one should compare effective annual rates when comparing loans, lenders are required to disclose the effective annual rate of a loan, and annual and effective interest rates are equal when interest is compounded annually.
Step-by-step explanation:
Let's evaluate each statement related to interest rate:
- Annual interest rates consider the effect of interest earned on reinvested interest payments. This statement is incorrect because annual interest rates do not necessarily consider the effect of compound interest unless specified as Annual Percentage Yield (APY) or effective annual rate.
- When comparing loans, you should compare the effective annual rates. This statement is correct as the effective annual rate accounts for the compound interest and gives a true reflection of the cost of borrowing on an annual basis.
- Lenders are required by law to disclose the effective annual rate of a loan to prospective borrowers. This is true in many jurisdictions, where regulations such as the Truth in Lending Act in the United States require lenders to display the APR, which is synonymous with the effective annual rate.
- Annual and effective interest rates are equal when interest is compounded annually. This statement is correct because when interest is compounded once a year, the nominal annual rate is the same as the effective annual rate.
Therefore, the correct statements related to interest rate are II, III, and IV.