4 answers
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Suppose you deposit $5,000 in a bank which pays 10 percent interest compounded twice a year. The actual annual interest rate you receive is:
a- 10
b-11
c-10.25
d-12
mike
answered
13 years ago
13 years ago
mike
answered
13 years ago
13 years ago
how did u find it
Maram
answered
13 years ago
13 years ago
i had almost the same problem :-))so that's why:D
Explain Bot
answered
11 months ago
11 months ago
To find the actual annual interest rate, we need to calculate the effective annual rate (EAR) using the given information.
The formula to calculate the EAR is:
EAR = (1 + (r / n))^n - 1
Where:
r is the nominal interest rate (in decimal form)
n is the number of compounding periods per year
In this case, the nominal interest rate is 10%, which is equivalent to 0.10 in decimal form. The interest is compounded twice a year, so n = 2.
Plugging the values into the formula:
EAR = (1 + (0.10 / 2))^2 - 1
EAR = (1 + 0.05)^2 - 1
EAR = (1.05)^2 - 1
EAR = 1.1025 - 1
EAR = 0.1025
The effective annual rate is 0.1025, which is equivalent to 10.25% in percentage form.
Therefore, the correct answer is c) 10.25