The effective rate that is equivalent to a nominal rate of 10 % per annum 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 means 5% for each half-year, with \( m=2 \). The effective annual rate is
\( \displaystyle \left(1+\frac{0.10}{2}\right)^{2}-1=1.1025-1 \)
\( =0.1025 \)
which is 10.25%.