This chapter discusses nominal and effective interest rates. Nominal rates do not account for compounding, while effective rates do. Effective rates are usually expressed annually but can be for any time period. Examples are provided to demonstrate how to calculate effective rates when the interest period and payment/compounding periods differ. Effective rates allow for proper time value of money calculations by incorporating compounding effects.
This chapter discusses nominal and effective interest rates. Nominal rates do not account for compounding, while effective rates do. Effective rates are usually expressed annually but can be for any time period. Examples are provided to demonstrate how to calculate effective rates when the interest period and payment/compounding periods differ. Effective rates allow for proper time value of money calculations by incorporating compounding effects.
This chapter discusses nominal and effective interest rates. Nominal rates do not account for compounding, while effective rates do. Effective rates are usually expressed annually but can be for any time period. Examples are provided to demonstrate how to calculate effective rates when the interest period and payment/compounding periods differ. Effective rates allow for proper time value of money calculations by incorporating compounding effects.