The highest effective annual rate that can be derived from an annual percentage rate of 9 percent is computed as

Question

Quizplus · Accepted Answer

The formula for effective annual rate is: 
EAR = (1 + APR/n)^n - 1
where APR is the annual percentage rate and n is the number of compounding periods in one year. 
Substituting APR = 9% and n = 1, we get:
EAR = (1 + 0.09/1)^1 - 1 
= 0.09 
To convert this to an equivalent rate with continuous compounding, we use the formula:
EAR_continuous = e^EAR - 1
Substituting EAR = 0.09, we get:
EAR_continuous = e^0.09 - 1
= 0.0944 (rounded to four decimal places)
Therefore, the highest effective annual rate that can be derived from an APR of 9% is 9.44%, which is given by option C.

The Highest Effective Annual Rate That Can Be Derived from an Annual