The R&M Bank currently offers an investment account with an interest rate of 8% compounded semi-annually.R&M wants to offer customers another account with interest compounded monthly.If R&M wants the effective rates to be equal, what interest rate should R&M quote for the second account?
A)7.87%
B)8.00%
C)8.16%
D)24.00%

Question

Quizplus · Accepted Answer

The effective rate for semi-annual compounding is (1 + 0.08/2)^2 - 1 = 0.0816. To find the equivalent monthly rate, we solve for r in (1 + r/12)^12 = 1.0816, which gives r = 0.0787.

The R&M Bank Currently Offers an Investment Account with an Interest