If you were evaluating a investment over a 10-year period that paid 8% compounded semiannually:

Question

Quizplus · Accepted Answer

When compounding is done semiannually, the interest rate needs to be divided by 2 as it will be applied twice in a year. Similarly, the number of years needs to be multiplied by 2 as the investment will be held for 20 semiannual periods. Therefore, the correct adjustment for the semiannual compounding would be to divide the interest rate by 2 and multiply the number of years by 2.

If You Were Evaluating a Investment Over a 10-Year Period