Answer :
Answer:
The correct answer is letter "C": effective annual.
Explanation:
The Effective Annual Rate is a way of restating the annual interest rate so that it takes into account the effects of compounding. The Effective Annual Rate is calculated using the following formula:
[tex]R = (1 + \frac{i}{n}) ^{n}-1[/tex]
where:
- R = Effective Annual Interest Rate
- i = Stated Annual Interest Rate
- n = Compounding Period
The Effective Annual Rate helps us to understand how a loan or investment works differently, if it compounds daily weekly, semi-annually or annually.