An effective annual rate of 10.52% is equivalent to:
A)10% compounded daily.
B)10% compounded weekly.
C)10% compounded monthly.
D)10% compounded semi-annually.

Question

Quizplus · Accepted Answer

The effective annual rate is the rate that would have produced the same amount of interest if it had been compounded continuously over the year. The formula for the effective annual rate is:EAR = (1 + r/n)^n - 1where:EAR is the effective annual rater is the nominal annual raten is the number of compounding periods per yearIn this case, the effective annual rate is 10.52%, so we can solve for the nominal annual rate using the formula above:10.52% = (1 + r/n)^n - 1Solving for r, we get:r = 10%So the nominal annual rate is 10%, and the correct answer is A.

An Effective Annual Rate of 10