(Q10 IN TYPE B)WHAT IS THE EFFECTIVE ANNUAL RATE ON A DEPOSIT OF $..

5. (Q10 in Type B)What is the effective annual rate on a deposit of $5,000 made ten years ago if the deposit is worth $9,948.94 today? The deposit pays interest semi-annually. A) 3.50% B) 6.76% C) 7.00% D) 7.12% Solution D. From the formula for PV, FV, r, and t, we have r = (FV/PV)

^1/t

– 1. Using t=20 because of semi-annual interest, we get r = 0.035 as the 6-month rate. Then (1+0.035)

²

-1 = 0.0712.