Multiple choice

Effective Interest Rate of 10% of annual interest compounded semi-annually is

  1. 10%

  2. 10.25%

  3. 10.5%

  4. 10.75%
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Effective rate = (1 + r/n)^n - 1. Here r = 0.10, n = 2. (1 + 0.05)^2 - 1 = 1.1025 - 1 = 0.1025 = 10.25%.

AI explanation

The formula for the effective annual rate when compounded semi-annually is (1 + R/200) squared - 1. Substituting the 10% rate gives (1 + 10/200) squared - 1, which equals (1.05) squared - 1. This calculates to 1.1025 - 1, or 0.1025, meaning the effective interest rate is 10.25%.

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