The effective rate equivalent to a nominal rate of 8% per annum compounded semi-annually is :
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 8.16%
To calculate the effective annual rate (EAR)
$EAR=\left(1+\frac{r}{n}\right)^n-1$
r = nominal annual interest rate = 8% = 0.08
n = number of compounding period = 2 (Semi-annual)
$EAR=\left(1+\frac{0.08}{2}\right)^2-1$
$=1.0816-1=0.0816$
$=8.16\%$