An effective rate of 14.9% has a nominal rate of 14.38% based on semi-annual compounding.

Question

Quizplus · Accepted Answer

The effective rate (also known as the effective annual rate or EAR) takes into account the impact of compounding within the year. For semi-annual compounding, the nominal rate is divided into two periods. To find the nominal rate from the effective rate, you would use the formula for converting effective rates to nominal rates given the compounding frequency. The calculation involves finding the nominal rate that, when compounded semi-annually, results in an effective annual rate of 14.9%. The given nominal rate of 14.38% compounded semi-annually would indeed approximate an effective rate of 14.9%, as the compounding effect makes the effective rate higher than the nominal rate.

An Effective Rate of 14