Final answer:
The correct formula to calculate the annual effective rate of return is option c) (Ending Value / Beginning Value) - 1, which aligns with the basic formula for growth rate and calculates the return over a one-year period.
Step-by-step explanation:
The formula to calculate the annual effective rate of return is c) (Ending Value / Beginning Value) - 1.
This calculation is based on the formula for growth rate, which states that the Future Value (FV) is equal to the Present Value (PV) multiplied by (1 plus the growth rate (g)) raised to the power of the number of periods. When we look at a one-year period, the formula simplifies to the option that provides us with the growth rate when we algebraically manipulate it to isolate 'g': Ending Value = Beginning Value * (1 + g), where 'g' represents the growth rate or the rate of return over the specified time period.
To calculate the effective annual return, we take the Ending Value of the investment, divide it by the Beginning Value, and then subtract 1. This leaves us with the growth rate 'g', giving us the annual rate of return.