What are the effective annualized rates for each of the following annual stated rates and compounding frequencies? What can you conclude about the degree to which stated rates are misleading given (1) the level of interest rates and (2) the frequency of compounding? That is, are they more or less misleading when the interest rates are high? Are they more of less misleading as the frequency increases?
Stated Annual Rate Compounding Frequency (per year) Effective Annual Rate
.01 2
.01 12
.10 2
.10 12
.30 2
.30 12