What is the effective annual rate of an investment that offers 8%, compounded quarterly?
A) 8.00%
B) 8.16%
C) 8.24%
D) 8.32%
E) 8.64%

Question

Quizplus · Accepted Answer

To find the effective annual rate, we need to use the formula:
EAR = (1 + r/n)^n - 1
where r is the nominal annual rate and n is the number of compounding periods per year.
In this case, r = 8% and n = 4 (since it is compounded quarterly).
So, EAR = (1 + 0.08/4)^4 - 1 = 0.0824 or 8.24%. 
Therefore, the best choice is C.

What Is the Effective Annual Rate of an Investment That