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The effective rate of interest corresponding to a nominal rate 3% p.a. payable half yearly is
- a)3.2% p.a.
- b)3.25% p.a.
- c)3.0225% p.a.
- d)None of these
Correct answer is option 'C'. Can you explain this answer?
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The effective rate of interest corresponding to a nominal rate 3% p.a....
Effective Rate of Interest Calculation
The effective rate of interest corresponds to the actual rate of interest earned by an investor. It takes into account the compounding effect of interest earned on the principal amount over a specific period of time. The formula for calculating the effective rate of interest is:
Effective Rate of Interest = (1 + r/n)^n - 1
where r is the nominal rate of interest, and n is the number of compounding periods per year.
Calculation for the Given Nominal Rate
In the given question, the nominal rate of interest is 3% p.a. payable half-yearly. This means that the interest is compounded twice a year, i.e., n = 2.
Using the above formula, the effective rate of interest can be calculated as follows:
Effective Rate of Interest = (1 + 0.03/2)^2 - 1
= (1.015)^2 - 1
= 0.030225 or 3.0225% p.a.
Therefore, option (c) is the correct answer, i.e., the effective rate of interest corresponding to a nominal rate 3% p.a. payable half-yearly is 3.0225% p.a.
The effective rate of interest corresponds to the actual rate of interest earned by an investor. It takes into account the compounding effect of interest earned on the principal amount over a specific period of time. The formula for calculating the effective rate of interest is:
Effective Rate of Interest = (1 + r/n)^n - 1
where r is the nominal rate of interest, and n is the number of compounding periods per year.
Calculation for the Given Nominal Rate
In the given question, the nominal rate of interest is 3% p.a. payable half-yearly. This means that the interest is compounded twice a year, i.e., n = 2.
Using the above formula, the effective rate of interest can be calculated as follows:
Effective Rate of Interest = (1 + 0.03/2)^2 - 1
= (1.015)^2 - 1
= 0.030225 or 3.0225% p.a.
Therefore, option (c) is the correct answer, i.e., the effective rate of interest corresponding to a nominal rate 3% p.a. payable half-yearly is 3.0225% p.a.
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The effective rate of interest corresponding to a nominal rate 3% p.a. payable half yearly isa)3.2% p.a.b)3.25% p.a.c)3.0225% p.a.d)None of theseCorrect answer is option 'C'. Can you explain this answer?
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