The effective rate which is equivalent to a nominal rate of 10% compounded semi-annually is:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 10.25%
$\text{Nominal rate} = 10\%,\quad \text{compounded semi-annually}$
$\text{Effective rate} = \left(1 + \frac{0.10}{2}\right)^2 - 1$
$= (1.05)^2 - 1 = 1.1025 - 1 = 0.1025$
$\text{Effective rate} = 10.25\%$