Annual inflation is expected to be 3.5% over the next 5 years. Heather's real MARR is 6%, compounded semiannually. What is the effective actual MARR per half a year?
A)4.78%
B)5.67%
C)7.12%
D)8.26%
E)9.71%

Question

Quizplus · Accepted Answer

The effective actual MARR per half a year can be calculated using the formula for the nominal rate: (1 + real rate) * (1 + inflation rate) - 1. The real rate per half year is 3% (6% annually compounded semiannually), and the inflation rate per half year is 1.75% (3.5% annually compounded semiannually). Thus, the effective actual MARR per half year is approximately 4.78%.

Annual Inflation Is Expected to Be 3