Question

You are looking at an investment that has an effective annual rate of 12.7 percent. a. What is the effective semiannual return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the effective quarterly return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the effective monthly return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

Step-by-step explanation:

The computation is shown below:

a. The effective semiannual return is shown below:

= {(1 + rate) ^ 6 month ÷ 12 month} - 1

= {(1 + 0.127) ^ 0.5} - 1

= 6.16%

b. The effective quarterly return is shown below:

= {(1 + rate) ^ 3 month ÷ 12 month} - 1

= {(1 + 0.127) ^ 0.25} - 1

= 3.03%

c. The effective monthly return is shown below:

= {(1 + rate) ^ 1 month ÷ 12 month} - 1

= {(1 + 0.127) ^ 0.083} - 1

= 1.001%