you are considering an investment that has a nominal annual

you are considering an investment that has a nominal annual interest rate of 11.46 percent compounded semiannually. therefore, the effective annual rate or EAR is?

Solution

Nominal Interest Rate, APR = 11.46%
Number of compounding period per year, n = 2

Effective Annual Rate, EAR = (1 + APR/n)^n - 1
Effective Annual Rate, EAR = (1 + 0.1146/2)^2 - 1
Effective Annual Rate, EAR = (1 + 0.0573)^2 - 1
Effective Annual Rate, EAR = 1.0573^2 - 1
Effective Annual Rate, EAR = 1.1179 - 1
Effective Annual Rate, EAR = 0.1179
Effective Annual Rate, EAR = 11.79%