What is the effective rate per semi-annual period, if the annual nominal interest rate is given as 14% per year, and interest is compounded n times a year? Select one: -63

Economics Dec 15, 2020

What is the effective rate per semi-annual period, if the annual nominal interest rate is given as 14% per year, and interest is compounded n times a year? Select one: -63.02% -98.78% a. 63.02.1 (50.9 +70.50 50.n b. 98.78 50.7+70.50 50-n c 119.55 50n +70.50 50-n d. 100.00 50.1 +7 0.50 50-n - 119.55% - 100.00%

Expert Solution

Ans. Option d

Effective yearly interest rate, y = (1+0.14/n)^n - 1

Semi annual interest rate, s = (1+y)^0.5 - 1

=> Semiannual Interest rate = (1 + (1+0.14/n)^n - 1)^0.5 - 1

=> Semiannual Interest rate = [(n + 0.14)/n]^0.5n - 1

=> Semiannual Interest in percentage = 100*[(50n+7)/50n]^0.5n - 100

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