Question

2. What is the effective annual rate of an investment that pays 6% for 5 years, compounded semiannually?

Answer 1

effective annual rate is 6.16 %

Explanation:

given data

rate = 6 % = 0.06

time 5 year = 10 semi annually

to find out

effective annual rate

solution

we know formula for annual effective rate of interest is

rate of interest =
`(1+ r/n)^(n)` -1

put here all value

rate of interest =
`(1+ 0.06/10)^(10)` -1

rate of interest =
`(1+ 0.06/10)^(10)` -1

rate of interest = 0.061646

so effective annual rate is 6.16 %