PRC-2 · Chapter 5 · Question 14 of 50
If a commercial bank advertises an interest rate of 12% compounded semi-annually, what is the precise periodic interest rate 'i' that should be used in financial formulas?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 6%
Explanation
Semi-annual compounding means the interest is calculated twice per year. Therefore, the annual rate must be divided by 2. The periodic rate 'i' is 12% / 2 = 6%.
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