The effective rate that is equivalent to a nominal rate of 12% compounded semiannually is :
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 12.36%
To calculate the effective rate equivalent to a nominal rate 12% compounded is,
$EAR=\left(1+\frac{r}{n}\right)^n-1$
$=\left(1+\frac{0.12}{2}\right)^2-1$
$=(1.06)^2-1=0.1236$
$EAR=12.36\%$