The effective annual rate increases when the ________ increases.
A) number of compounding periods in a year
B) number of years invested
C) quoted rate
D) both A and C

Question

Quizplus · Accepted Answer

The effective annual rate takes into account the compounding of interest within a year, so as the number of compounding periods in a year increases, so does the effective annual rate. Additionally, as the quoted rate, which is the nominal interest rate, increases, so does the effective annual rate. The number of years invested does not directly affect the effective annual rate.

The Effective Annual Rate Increases When the ________ Increases