MAAnnual effective interest rate

P: The interest is 5/2 = 2.5% every six months. So the effective annual rate is 1.025^2 - 1 = 0.050625 (or 5.0625% per year) Q: If the annual rate is R, then (1+R)^4 = 1.18 So R = (fourth root of 1.18) - 1 = 0.0422 (or 4.22% per year)

Sir, how to get 4.22% ? please explain in details. Thank you sir.

If you invest $100 at interest of R per year, then by the end of 4 years the investment will have grown to $100 x (1+R)^4. Alternatively if you invest $100 with one interest receipt of 18% at the end of 4 years, then it will have grown to $100 x 1.18. So.....(1+R)^4 = 1.18 The rest of the solution follows as in my previous reply. Hope that helps! (You might find my free lecture on interest useful)

Now i got it sir. Thank you for your clear explanation :)

You are welcome :-)