June 2012 paper

Exe gives 2% (4%/2) every six months. If you invested 100, then after six months it would be 102. After another 6 months it would be 102 x 1.02 = 1.0404. This is the same as 4.04% per year. If Wye was giving interest of R every year, then 100 invested for 4 years would grow to 100 x (1 + R)^4. So 100 x (1+R)^4 must equal 100 x 1.20 So 1+ r = the fourth root of 1.20

The three years is not relevant because it asks for the annual effective rate (not the three year rate).

You are welcome :-)