The effective rate equivalence to a normal rate of 4% converted half yearly is :
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 4.04%
The Effective Annual Rate (EAR) is,
$EAR=\left(1+\frac{r}{n}\right)^n-1$
$=\left(1+\frac{0.04}{2}\right)^2-1$
$=1.0404-1$
$=0.0404=4.04\%$