The stated interest rate on your account is 7.12%,interest paid semi-annually.Your effective rate of interest will be:

Question

Quizplus · Accepted Answer

When interest is paid semi-annually, it means that compounding takes place twice a year. The effective rate of interest takes into account the impact of compounding. Therefore, the effective rate of interest will be greater than the stated rate of 7.12%. The exact effective rate can be calculated using the formula: 
Effective Rate = (1 + (r/m))^m - 1
Where r is the stated rate, and m is the number of times per year that compounding takes place. 
In this case, r = 7.12% and m = 2 (since interest is paid semi-annually). 
Effective Rate = (1 + (0.0712/2))^2 - 1
Effective Rate = 0.0727 or 7.27% 
Therefore, the effective rate of interest is greater than the stated rate of 7.12%.

The Stated Interest Rate on Your Account Is 7