The formula of effective annual return is written as _____________?
Correct answer: A. (1+r) c - 1
- A. (1+r) c - 1
- B. (2+r) c - 2
- C. (3+r) c - 3
- D. (1+r) c - 5
Explanation
When r is the return per compounding period and c is the number of periods, the effective annual return is calculated as (1+r)^c − 1. If r is instead a nominal annual rate, it must first be divided by c, but option a reflects the stated per-period form.
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