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SSC Audit Tax Finance P-II QUESTION #6161
Question 1
If a developer wants to choose between two investments where Project A offers 12% APR compounded monthly and Project B offers 12.2% APR compounded annually, which is better?
  • Project A (12.68% Effective Rate)✔️
  • Project B (12.20% Effective Rate)
  • They are identical
  • Project A (12.36% Effective Rate)
Correct Answer Explanation
Effective Rate $i_{eff} = [1 + (i_{nom}/m)]^m - 1$. For A: $[1 + (0.12/12)]^{12} - 1 \approx 12.68\%$. B is only 12.2%.