An investment opportunity promises a stated interest rate of 6 percent with semi

Question

An investment opportunity promises a stated interest rate of 6 percent with semiannual compounding. Which of the following statements is most correct? (Points : 2)

A. The periodic rate is greater than 3 percent.
B.   The periodic rate is less than 3 percent.
C. The effective annual rate is less than 6 percent.
D. The effective annual rate is greater than 6 percent.
E. The effective annual rate is 6 percent.

An investment opportunity promises a stated interest rate of 6 percent with semiannual compounding. Which of the following statements is most correct? (Points : 2)

Explanation / Answer

Effective Annual Rate = (1.03 x 1.03) - 1 = 6.09%. Thus correct option is Option D. The effective annual rate is greater than 6 percent.

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