Question 08 Effective annual rate Effective annual rate: You are considering three alternative investments: (1) a 3-year bank term deposit paying 7.5 per cent interest compounded quarterly; (2) a 3-year bank term deposit paying 7.3 per cent interest compounded monthly; and (3) a 3-year bank term deposit paying 7.75 per cent interest compounded annually. Which investment has the highest effective annual rate? Provide an explanation why the alternative you choose has the highest effective annual rate.