Final answer:
To find the effective rate of an investment with a 3% annual interest rate compounded quarterly, use the formula for effective annual rate (EAR), which results in an effective rate of approximately 3.034%, corresponding to option C.
Step-by-step explanation:
The question asks us to calculate the effective rate of an investment with a 3% annual interest rate, compounded quarterly. To do this, we use the formula for effective annual rate (EAR) which is (1 + i/n)n - 1, where i is the annual interest rate and n is the number of compounding periods per year.
In this case, i = 0.03 and n = 4, as the interest is compounded quarterly. Therefore, the calculation is (1 + 0.03/4)4 - 1. After performing the calculations, we get:
(1 + 0.0075)4 - 1 = 1.03041625 - 1 = 0.03041625 or 3.041625%
Thus, the effective rate earned on the investment is approximately 3.034%, which matches option C.