Question

The effective annual rate of interest corresponding to a nominal rate of 8% per annum payable half-yearly is:

• A. 8.8%
• B. 8.6%
• C. 8.23%
• D. 8.16%

Answer 1

The correct option is D 8.16%

Let the principle amount be = 100 Rs

The amount after 1 year at 8% per annum when interest is compounded half yearly is

$=100{\left(1+\frac{\frac{8}{2}}{100}\right)}^{2\times 1}=100{\left(\frac{104}{100}\right)}^2=108.16$
CI for 1 year = 108.16 – 100 = 8.16
The effective annual rate of interest is = 8.16%