Assuming semi-annual compounding and a quoted mortgage rate of 9 percent, what are the effective annual rate and the effective monthly rate?
A)4.5 percent, 1 percent
B)9 percent, 0.75 percent
C)9.2 percent, 0.736 percent
D)18.81 percent, 0.75 percent
E)18.81 percent.0.736 percent

Question

Quizplus · Accepted Answer

To calculate the effective annual rate, use the formula: 
Effective Annual Rate = (1 + (Quoted Rate/m))^(m) - 1 
where m is the number of compounding periods per year. In this case, m = 2 (semi-annual compounding). 
Effective Annual Rate = (1 + (0.09/2))^(2) - 1 = 9.2%

To calculate the effective monthly rate, use the formula: 
Effective Monthly Rate = (1 + (Quoted Rate/m))^(m/n) - 1 
where n is the number of periods per year, and m is the number of compounding periods per year. In this case, n = 12 (monthly periods), and m = 2 (semi-annual compounding). 
Effective Monthly Rate = (1 + (0.09/2))^(2/12) - 1 = 0.736%

Therefore, the correct answer is C.

Assuming Semi-Annual Compounding and a Quoted Mortgage Rate of 9