Question

You want to invest $18,000 and are looking for safe investment options. Your bank is offering you a certificate of deposit that pays a nominal rate of 6% that is compounded semiannually. What is the effective rate of return that you will earn from this investment

Answer 1

The correct solution is "6.09%".

Step-by-step explanation:

Given:

Nominal rate,

= 6%

or,

= 0.06

As we know,

⇒
`EAR = [(1+(APR)/(m) )^m]-1`

By substituting the values, we get

`=[(1+(0.06)/(2) )^2]-1`

`=[(1+0.03 )^2]-1`

`=1.0609-1`

`=6.09` (%)