money market hedge

good evening

in a question GN Co (dec 09) , we are supposed to do a moeny market hedge. the deposit rates and the borrowing rates are given on per annum basis and the hedge is for 6 months.

now, i just divided the rate pa by 2 to get the 6-month rate. but the kit uses the formula for the effective rate = (1+ pa rate)^.5 – 1.

the difference in the actual answer was very small but i want to know why did he use the formula? where as we usually just do a (interest rate) x 6/12 to get the appropriate

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sir…there is one more outstanding question from 2 days ago…please reply to that as well..

thank u