What is the effective annual rate of interest corresponding to a nominal rate of 10% per annum payable half-yearly?
Answer & explanation
Correct answer: option 1
Amount = P$(1 + \frac{R}{100})^t$
Amount of Rs 100 for 1 year when compounded half-yearly,
⇒ Amount = 100$(1 + \frac{5}{100})^2$
= 100 x $\frac{441}{400}$
= 110.25
Effective rate = (110.25 - 100)%
= 10.25%