Question

What is the corresponding annual effective interest rate equivalent to an effective annual discount

rate of 5% p.a.?

Answer 1

Amount of Rs.100 for 1 year when compounded half-yearly} ;

$=Rs. [100+(1+\frac {3} {100})^{2}] =Rs. 106.09$

∴ Effective rate =(106.09−100)% =6.09%