Under method 1, you are assuming semi-annual compounding (0.06 / 2 = 0.03), but under Method 2, you are assuming annual compounding (1.06^0.5 - 1 = 0.02956).

Any question you get on the exam should specify the compounding frequency.

If we assume 6% compounded semi-annually, then the effective rate for the 6 month period is 3%. 2.977% is the nominal rate that would apply if you split that 6 month period into two 3 month periods. [ (1+0.02977/2)^2 = 1.02999 ]

2.956% is the rate I would credit if compounding were annual in order to recognize 6 months of interest. [(1+0.02956)^2 = 1.05999]

Any nominal interest rate r has to meet the following relationship:

(1 + r/m)^m = 1 + effective rate where m is the number of compoundings within the period assumed by the effective rate. You have likely seen this formula using an annual period for the effective rate with m compoundings per year, with typical m of 2, 4, 12, 365, all the way to continuous.

With BA II plus calculator, how to convert 3% (effective interest) to 2.956% (Nominal interest) using ICONV function button or in some other way (other than using the formula) ?