The effective rate that is equivalent to a nominal rate of 10% compounded semi-annually is :
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 10.25%
A nominal rate of 10% compounded semi-annually is,
$\frac{10\%}{2}=5\%=0.05$
Effective Annual Rate = $\left(1+\frac{0.10}{2}\right)^2-1$
$=(1.05)^2-1$
$=0.1025=10.25\%$