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
thanks
how did u find it
i had almost the same problem :-))so that's why:D
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