Mrs Renu has two investment options 8.4% p.a compounded monthly or 8.5% p.a compounded semiannually. Which option is better for Mrs Renu ?

First option

The correct answer is option (2) : First option

First option :-

Given r= 8.4% p.a

P = 12 months

So, effective rate (per rupee) = $\left(1+\frac{8.4}{1200}\right)^{12}-1$

$= (1.007)^{12}-1$

$=1.0873-1$

$=0.0873$

Hence, effective rate $=0.0873×100$%=$8.73$%

Second offer:-

Given  r =8.5% p.a

P = 2 half years

So, effective (per rupee) = $\left(1+\frac{8.5}{200}\right)^2-1$

$= (1.0425)^2-1$

$= 1.0868 - 1 $

$= 0.0868$

Hence, effective rate $= 0.0868 × 100$ % $= 8.68$%

Hence , the first option is better for Mrs Renu