If an investment provides a 3% return semi-annually, its effective annual rate is
A) 3%.
B) 6%.
C) 6.06%.
D) 6.09%.

Name: If an investment provides a 3% return semi-annually, its effective annual rate is A) 3%. B) 6%. C) 6.06%. D) 6.09%.
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Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + periodic rate)^n - 1, where the periodic rate is 3% or 0.03 and n is the number of periods per year, which is 2 for semi-annual. So, EAR = (1 + 0.03)^2 - 1 = 6.09%.

If an Investment Provides a 3% Return Semi-Annually, Its Effective