The semiannually compounded rate is 6% quoted on an annualized basis. The equivalent quarterly compounded rate is:
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A. B. C. D.C
To solve such problems, think about investing a dollar for 1 year. The final amount should be the same under both the quotations. Under quarterly compounded rate, r, $1 grows to (1+r/4)^4 in 1 year. Under semiannual compounding, it grows to (1+0.06/2)^2 = 1.0609. Since these two should be equal, we get (1+r/4)^4 =
1.0609, giving r = 5.96%. Note that the quarterly compounded rate must be smaller than the semiannually compounded rate, ruling out 6.12 automatically.