Multiple choice

The effective annual rate of interest corresponding to nominal rate 6% p.a. payable half yearly is

  1. 6.06

  2. 6.07

  3. 6.08

  4. 6.09
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For a nominal rate r = 6% compounded half-yearly (n=2), the effective annual rate is (1 + r/n)^n - 1 = (1 + 0.06/2)^2 - 1 = (1.03)^2 - 1 = 1.0609 - 1 = 0.0609, or 6.09%.

AI explanation

Using the effective rate formula for nominal rate r payable half yearly, the effective annual rate is (1 + r/200) squared minus 1. Substituting r as 6 gives (1 + 0.03) squared minus 1, which equals 1.0609 minus 1. Multiplying the result by 100 yields an effective annual rate of 6.09 percent.

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