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What is Calculating Effective Interest Rates about?
The nominal interest rate is the stated rate, usually compounded more than once per year. The effective rate takes into account the frequency of compounding and gives an equivalent annual rate. Formulas and a BAII Plus calculator can be used to determine the effective rate from the nominal rate and compounding frequency, or vice versa. Examples show finding the effective rate of 9% compounded quarterly is 9.31%, and that a 14.06% nominal rate compounded quarterly has an effective rate of 15%.
- Author
- Zaid Tariq Alabiry
- Language
- EN