The effective annual rate of interest, corresponding to a nominal rate of 6% per annum payable half yearly, is?
- 6.09%
- 6.06%
- 6.07%
- 6.08%
Explanation
The nominal rate of interest is 6% per annum, payable half-yearly. This means that the interest is compounded twice a year.
To find the effective annual rate of interest, we can use the formula:
Effective Rate = (1 + (Nominal Rate/2))^2 - 1
where Nominal Rate = 6% = 0.06
Effective Rate = (1 + (0.06/2))^2 - 1
= (1 + 0.03)^2 - 1
= (1.03)^2 - 1
= 1.0609 - 1
= 0.0609
= 6.09%
So, the effective annual rate of interest is 6.09%.
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