The return actually earned on an investment over a year is known as the ________rate

Question

BlackTom AI · Accepted Answer

The question asks about the return actually earned on an investment over a year, which is best described by the way we account for compounding effects over that period.
Option a: nominal. The nominal rate is the stated annual rate without adjusting for inflation or compounding within the year; it ignores the effect of intra-year compounding, so it does not precisely reflect the actual return earned over the year.
Option b: real. The real rate adjusts for inflation, showing purchasing power changes, not specifically the raw annual return due to compounding or the gross earnings over a year.
Option c: effective. The effective rate (often called the effective annual rate or EAR) represents the true annual return by incorporating the effect of compounding within the year, aligning with the idea of the return actually earned over a year.
Option d: simple. The simple rate uses simple interest without compounding, which underestimates or overestimates the year’s earnings when interest is reinvested, so it does not capture the true annual return when compounding occurs.
Thus, the statement that the return actually earned on an investment over a year is the effective rate aligns with the concept of compounding-adjusted annual yield.

MCD2170 - T2 - 2025 Key Concept 5 video quiz

The return actually earned on an investment over a year is known as the ________rate

View Explanation

Log in for full answers

Similar Questions

Amy invested $3000 in a bank account at an interest rate of 5.1% per annum, compounded quarterly. The effective rate of interest for her investment is closest to

A 3-month GIC offers an APR of 8% compounded monthly. What is the 3-month effective rate? Round your final answer to a percentage with two decimal places and do not use the “%” sign, i.e. if the answer is 1.23% then write 1.23

Your bank issues you a loan at 9% APR interest, compounded quarterly. What is the effective interest rate for the entire loan if you pay it back after two months? Round your answer to a percentage with two decimal places and do not use the “%” sign, i.e. if the answer is 1.23% then write 1.23

What is the effective rate of interest per day equivalent to 4.25% p.a. compounding semi-annually?

The market interest rate related to a bond is also called the

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler