A nominal rate of 8.9% compounded semi-annually is similar to what effective rate?

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula for converting a nominal rate compounded semi-annually to an effective rate: $EAR = (1 + \frac{r}{n})^n - 1$, where $r$ is the nominal rate and $n$ is the number of compounding periods per year. Substituting $r = 0.089$ and $n = 2$, we get $EAR = (1 + \frac{0.089}{2})^2 - 1 = (1.0445)^2 - 1 = 1.09120225 - 1 = 0.09120225$, or 9.1%.

A Nominal Rate of 8