Question

You want to invest $18,000 and are looking for safe investment options. Your bank is offering you a certificate of deposit that pays a nominal rate of 6% that is compounded semiannually. What is the effective rate of return that you will earn from this investment

Answer 1

Answer:

The correct solution is "6.09%".

Explanation:

Given:

Nominal rate,

= 6%

or,

= 0.06

As we know,

⇒ $EAR = [(1+\frac{APR}{m} )^m]-1$

By substituting the values, we get

             $=[(1+\frac{0.06}{2} )^2]-1$  

             $=[(1+0.03 )^2]-1$

             $=1.0609-1$

             $=6.09$ (%)