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A bank is offering to sell 6-month certificates of deposit for $9,500. At the end of 6 months, the bank will pay $10,000 to the certificate owner. Based on a 6- month interest period, compute the nominal annual interest rate and the effective annual interest rate

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Answer:

1. Nominal Interest rate.

Interest accrued after 6 months is;

= 10,000 - 9,500

= $500

Nominal Interest;

500 = 9,500 * x * 1/2 years

500 = 4,750x

x = 10.53%

2. Effective interest

9,500 * ( 1 + x )^0.5 years = 10,000

x = (10,000/9,500)^2 - 1

x = 10.80%

The nominal annual interest rate and the effective annual interest rate is 10.52% and 10.80%.

  • The calculation is as follows:

Interest accrued after 6 months is;

= 10,000 - 9,500

= $500

For Nominal Interest;

[tex]500 = 9,500 \times x \times 0.5 years[/tex]

500 = 4,750x

x = 10.53%

For effective interest

[tex]9,500 \times ( 1 + x )^{0.5 years} = 10,000[/tex]

[tex]x = (10,000\div 9,500)^2 - 1[/tex]

x = 10.80%

Learn more: brainly.com/question/17429689

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