Sanita Bank Ltd. pays 8% interest per year on deposit which is compounded half-yearly. What is an effective IT interest rate?

Sanita Bank Ltd. pays 8% interest per year on deposit which is compounded half-yearly. What is an effective IT interest rate?

To find the Effective Interest Rate (EIR) (also known as Effective Annual Rate / EAR), we use the compounding formula:

Given Data:

• Nominal Interest Rate ():
• Compounding Frequency ():  (compounded half-yearly)

Step-by-Step Calculation:

1. Calculate the Periodic Interest Rate ():

2. Apply the EIR Formula:

3. Convert to Percentage:

Final Answer:

The effective interest rate is 8.16%.

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