If an investment provides a 2.1% return quarterly, its effective annual rate is
A) 2.1%.
B) 8.4%.
C) 8.56%.
D) 8.67%.

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula $ (1 + i)^n - 1 $, where $i$ is the quarterly interest rate and $n$ is the number of quarters in a year. Here, $i = 0.021$ and $n = 4$, so EAR = $ (1 + 0.021)^4 - 1 = 1.084728 - 1 = 0.0867 $ or 8.67%.

If an Investment Provides a 2