The effective rate that is equivalent to a nominal rate of 16% compounded semi-annually is:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 16.64%
$\text{Effective rate} = \left(1 + \frac{0.16}{2}\right)^2 - 1$
$= (1.08)^2 - 1 = 1.1664 - 1 = 0.1664$
$\text{Effective rate} = 16.64\%$