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% **
Nominal rate = $12\%$ compounded semi-annually.
Semi-annual rate:
$\frac{12\%}{2} = 6\% = 0.06$
Effective annual rate (EAR):
$\left(1 + 0.06\right)^{2} - 1$
$= 1.06^{2} - 1$
$= 1.1236 - 1$
$= 0.1236$
Effective rate = $12.36\%$