What is the effective annual interest rate on a savings account that earns interest at a rate of 1.55% compounded monthly?
a.
1.29%
b.
1.55%
c.
1.56%
d.
1.59%

C

Step-by-step explanation:

The formula for effective annual interest rate is:

where

r is the effective annual interest rate

i is the stated interest rate (here, it is 1.55%, or 0.0155)

n is the number of compounding periods (here, compounded monthly, so it means 12 times a year, so n = 12)

plugging these info into the formula, we get:

0.0156 * 100 = 1.56%

correct answer is C