Narrative 11-1
Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent)
-Refer to Narrative in your text 11-1. Omar invests $3,000 at 12% interest, compounded semiannually for 2 years. Calculate the effective interest rate for his investment. (Round to nearest hundredth percent)
A) 10.80%
B) 12.36%
C) 9.65%
D) 12.52%

Question

Quizplus · Accepted Answer

The effective interest rate for an investment with a nominal rate of 12% compounded semiannually for 2 years can be calculated using the formula for the effective annual rate (EAR): $EAR = (1 + \frac{r}{n})^n - 1$, where $r$ is the nominal annual interest rate (0.12 in this case) and $n$ is the number of compounding periods per year (2 for semiannual). Plugging in the values, we get $EAR = (1 + \frac{0.12}{2})^2 - 1 = (1 + 0.06)^2 - 1 = 1.1236 - 1 = 0.1236$ or 12.36%.

Narrative 11-1 Solve the Following Problems Using Either Tables 11-1 or 11-2