Consider the following investment alternatives: The highest effective rate of return you could earn on any of these investments is closest to ________.
A)6.0860%
B)6.1110%
C)6.1610%
D)6.1360%

Question

Consider the following investment alternatives:  The highest effective rate of return you could earn on any of these investments is closest to ________.
A)6.0860% 
B)6.1110% 
C)6.1610% 
D)6.1360%

Quizplus · Accepted Answer

The highest effective rate of return can be calculated using the formula:
Effective Annual Rate (EAR) = (1 + (Annual Percentage Rate/n))^n - 1
where n is the number of times the interest is compounded in a year.
For option C, EAR = (1+(6.05%/2))^2 - 1 = 6.1610%
This is higher than the EARs for options A, B, and D. Therefore, C is the best choice.

Consider the Following Investment Alternatives: the Highest Effective Rate