The interest rate considering compounding of interest rate and is earned in 12 months, is considered as _____________?
Correct answer: A. effective annual return
- A. effective annual return
- B. ineffective annual return
- C. decrease in return
- D. increase in return
Explanation
An effective annual return includes the effect of compounding during the year, unlike a nominal return that may quote only the stated periodic rate. Thus, a return compounded over 12 months is an effective annual return.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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