Question

An interest rate is 12% per annum with continuous compounding. What is the equivalent rate with semiannual compounding

Answer 1

11.66%

Step-by-step explanation:

The interest rate of continuous compounding is known as the effective interest rate and this is 12%. The interest equivalent of this, compunded a number of times in a year is known as the norminal rate.

The Nominal rate with semiannual compounding is calculated using a financial calculator as follows :

12% SHIFT + EFF%

P/YR = 2

SHIFT NOM% = 11.66%