Question

1) If the compounding period is less that 1 year, the effective annual rate is greater than the annual percentage return.

A) True

B) Fales

2) Dividend yield is not a component of the holding period return.

A) True

B) False

Answer 1

Question 1

The answer is True.

--> If the compounding period is less that 1 year, this means there are more than one compounding in a year and more the compounding, more will be the investment value at the end of the year as when there are more compounding more interest is earned on interest also, hence the effective annual rate which the investment must be earning will be greater than the annual percentage return.

Effective annual rate considers the effect of compounding, and will be more than the annual percentage return when the compounding is more than 1.

Hope it helps!