If the interest rate of 10% per period is compounded half yearly, the actual annual return on the principal will be ______________ percent ?
Correct answer: C. > 20
- A. 10
- B. 20
- C. > 20
- D. < 20
Explanation
With 10% earned in each half-year period, the annual growth factor is (1.10)² = 1.21, giving a 21% annual return. Compounding therefore makes the annual return slightly greater than 20%.
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