The effective annual rate of interest corresponding to a nominal rate of 2% per annum, payable half-yearly, is:
Show answer & explanation
Correct answer: B
Explanation
The correct answer is option 2 i.e. 2.01%
Nominal rate: 2%
Compounded half-yearly
Formula used
The effective annual rate = (1 + i/n)^n - 1
where i is the stated interest rate as a decimal and n is the number of interest payments per year.
The effective annual rate = (1 + 0.02/2)2 - 1
= 1.012 - 1 = 0.0201 or 2.01%