You are considering two investments.Investment A yields 10% compounded quarterly.Investment B yields r% compounded semiannually.Both investments have equal annual yields.Find r.
A)19.875%
B)10%
C)10.38%
D)10.125%

Question

Quizplus · Accepted Answer

To find the equivalent semiannual rate (r) for Investment B, we equate the annual yields of both investments. For Investment A, the effective annual rate is (1 + 0.10/4)^4 - 1 = 0.10381289 or 10.381289%. For Investment B, the effective annual rate is (1 + r/2)^2 - 1. Setting these equal gives (1 + r/2)^2 = 1.10381289. Solving for r gives r ≈ 10.125%.

You Are Considering Two Investments