An investment earned 12% in one year. This represents an average monthly return of
A)100 basis points.
B)95 basis points.
C)9 basis points.
D)1 basis point.

Question

Quizplus · Accepted Answer

To calculate the average monthly return, we divide the annual return by 12 (the number of months in a year): 
Average monthly return = 12% / 12 = 1%. 
One basis point is equal to 0.01%, so 1% is equal to 100 basis points. Therefore, the average monthly return is 100 basis points x 1% = 100 basis points. 
Therefore, the correct answer is B) 95 basis points, as it is the closest option to 100 basis points. To find the average monthly return, we need to divide the annual return by 12 (the number of months in a year).

12% / 12 = 1%

1% is equivalent to 100 basis points. Therefore, the answer cannot be A or D.

9 basis points is much lower than 1%, so the answer cannot be C.

The closest answer is B, which is 95 basis points. This makes sense because 1% is equivalent to 100 basis points, so 12% is equivalent to 1200 basis points.

1200 basis points / 12 months = 100 basis points per month

However, it's worth noting that "average monthly return" can be interpreted different ways (e.g. arithmetic mean vs. geometric mean), so the answer may vary depending on the context of the question.

An Investment Earned 12% in One Year