Question

Consider the following investment​ alternatives:

Investment Rate Compounding
A 6.858​% Annual
B 6.6571​% Daily
C 6.7359​% Quarterly
D 6.722​% Monthly

The lowest effective rate of return you could earn on any of these investments is closest​ to:

Answer 1

Lowest effective interest rate

A 6.858%

B 6.883%

C 6.908%

D 6.933%

Step-by-step explanation:

Effective rate is the rate of interest that actually earned or paid on any investment or on a loan. It also measure the compounding effect on the investment.

r = (1 + i/n)^n - 1

A

6.858​% Annual

r = 6.858​%

B

6.6571​% Daily

Assuming 365 days

r = (1 + 6.6571%/365)^365 - 1 = 6.883%

C

6.7359​% Quarterly

r = (1 + 6.7359%/4)^4 - 1 = 6.908%

D

6.722​% Monthly

r = (1 + 6.722%/12)^12 - 1 = 6.933%