A certain amount of money is lent at a 10% annual compound interest rate,…
2023
A certain amount of money is lent at a 10% annual compound interest rate, payable half-yearly. What is the effective annual rate of interest?
- A.
10.10%
- B.
10.16%
- C.
10.20%
- D.
10.25%
Attempted by 4 students.
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Correct answer: D
The nominal annual interest rate is 10%, compounded half-yearly. This means the periodic rate per half-year is 10% / 2 = 5%. The effective annual rate is calculated as (1 + 0.05)^2 - 1 = 1.1025 - 1 = 0.1025, which equals 10.25%.