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22 July, 17:59

What is the effective annual rate of 9.6 percent compounded semiannually?

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  1. 22 July, 18:20
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    An interest rate of 9.6% compounded semi-annually can be calculated using an example of a principal amount of $1000. If it is actual 9.6% used to calculate the interest after 6 months, then for the first 6 months the interest will be $96 so the principal plus interest will be $1096. For the second 6 months, still using 9.6% then it will be based on $1096 so it will be $105.22. So the total interest amount of $96 + $105.22 = $201.22/$1000 = 0.201x100=20.1% so compounding if at a good interest rate can grow an investment fairly rapidly.
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