Problem:
An investment opportunity promises a stated interest rate of 6 percent with semiannual compounding. Which of the following statements is most correct?
A. The periodic rate is greater than 3 percent.
B. The periodic rate is less than 3 percent.
C. The effective annual rate is less than 6 percent.
D. The effective annual rate is greater than 6 percent.
E. The effective annual rate is 6 percent.
Justify your answer.