The effective rate that is equivalent to a nominal rate of 12% compounded semi-annually is:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 12.36%
$\text{Nominal rate} = 12\%,\;\; \text{compounded semi-annually}$
$\text{Rate per half-year} = \frac{12}{2} = 6\%$
$\text{Effective rate} = (1 + 0.06)^2 - 1$
$= 1.1236 - 1 = 0.1236$
$= 12.36\%$
The effective rate is $12.36\%$.