The effective rate that is equivalent to a nominal rate of 16% compounded semi-annually is :
Answer & explanation
Correct answer: option 2
Nominal rate $=16\%$ compounded semi-annually
Number of compounding periods per year $=2$
Rate per period
$=\frac{16}{2}=8\%$
Effective annual rate
$=(1+0.08)^2-1$
$=1.1664-1$
$=0.1664$
$=16.64\%$
The effective rate is $16.64\%$.