Question

What will be the
effective
rate
of
interest for the first
year, if the rate of
interest is 40% p.a.
compounded semi-
annually?
​

Answer 1

Answer:

Effective annual interest rate = (1 + (nominal rate / number of compounding periods)) ^ (number of compounding periods) - 1. For investment A, this would be: 10.47% = (1 + (10% / 12)) ^ 12 - 1.