- CFA Exams
- CFA Exam: Level I 2021
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 2. Calculate the Effective Annual Rate

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**CFA Practice Question**

The effective annual interest rate is ______.

B. greater than the annual percentage rate when the number of compounding periods per year is greater than one

C. less than the annual percentage rate when the number of compounding periods per year is greater than one

A. always equal to the annual percentage rate

B. greater than the annual percentage rate when the number of compounding periods per year is greater than one

C. less than the annual percentage rate when the number of compounding periods per year is greater than one

Correct Answer: B

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**User Contributed Comments**
4

User |
Comment |
---|---|

imroark |
More payments within a year (& compounded) will only see you earning more! Think about it intuitively... |

mansi |
its equal when the compounding period is one year. |

Shaan23 |
C is correct if the number of compounding periods per year is LESS than one. |

sasarwar |
B |