Interest rate considering compounding of interest rate and is earned in 12 months is considered as

A. effective annual return

B. ineffective annual return

C. decrease in return

D. increase in return

Answer: Option A

Solution(By Examveda Team)

Interest rate considering compounding of interest rate and is earned in 12 months is considered as effective annual return. Effective annual return (EAR) is the annual rate that captures the magnifying effect of multiple compounding periods per year of an investment.