You are looking at an investment that has an effective annual rate of 14.2 percent.
(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Effective semiannual return %
Effective quarterly return %
What is the effective monthly return?
HERE IS THE SOLUTION FOR A DIFFERENT PROBLEM !!! TRY TO FIGURE IT OUT FROM THE BELOW SOLUTION! I HAVE ASKED THIS 5 times and no one has gotten it right
Here we need to convert an EAR into interest rates for different compounding periods. Using the equation for the EAR, we get:
EAR = [1 + (APR / m)]m − 1
EAR = .132 = (1 + r)2− 1 r = (1.132)1/2 − 1 r = .0640, or 6.40% per six months
EAR = .132 = (1 + r)4 − 1 r = (1.132)1/4 − 1 r = .0315, or 3.15% per quarter
EAR = .132 = (1 + r)12− 1 r = (1.132)1/12 − 1 r = .0104, or 1.04% per month
Notice that the effective six-month rate is not twice the effective quarterly rate because of the effect of compounding.