What will be the effective annual rate of compound interest of 7% per annum payable half yearly is:
Answer & explanation
Correct answer: option 4
Rate of interest half yearly = \(\frac{7}{2}\) = 3.5%
Effective rate of interest = x% + x% + \(\frac{x\;×\;x}{100}\)%
= 3.5 + 3.5 + \(\frac{3.5\;×\;3.5}{100}\)
= 7 + 0.1225 = 7.1225%