The effective rate, which is equivalent to a nominal rate of 12% compounded semi-annually, is
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 12.36%
The effective rate equivalent to a nominal rate r compounded m times a year is
\( \displaystyle r_e = \left(1 + \frac{r}{m}\right)^m - 1 \)
Here r = 0.12 and m = 2:
\( \displaystyle r_e = \left(1 + \frac{0.12}{2}\right)^2 - 1 \)
\( = (1.06)^2 - 1 \)
\( = 1.1236 - 1 = 0.1236 = 12.36\% \)
CBSE Applied Mathematics (Class XII):
Nominal and Effective Rate of Interest
