# What is the effective annual rate of 10 percent compounded semiannually?

Compounded semiannually means that the rate of interest is charged every 6 months which makes it half a year.

## Answer: The effective annual rate of 10 percent compounded semiannually will be 10.25%.

Go through the steps to understand the answer better.

**Explanation:**

Formula = (1 + Nominal Rate/Number of periods)^{Number of periods} -1

Since we need the EAR compounded semiannualy, numbe rof periods = 2

Effective Annual Rate = (1 + 10%/2)^{2 }-1

= (1 + 5%)^{2} - (1)

= 1.05^{2} -1

= 1.1025 - 1

Effective Annual Rate = 10.25%

### Thus, the effective annual rate of 10 percent compounded semiannually will be 10.25%.

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