EMT320: Foundations of Engineering Economy

WEEKLY OVERVIEW: Week 3

Week 3: Nominal and Effective Interest Rates

Course Objectives:

Compare Nominal and Effective Interest Rates

Weekly Objectives:

Understand the difference between nominal and effective interest rates

Determine the correct I and n values for different payment and compounding periods
Perform equivalence calculations for various payment periods and compounding periods when
only single amounts occur.
The student should be able to make equivalence calculations when uniform or gradient series
occur for payment periods equal to or longer than the compounding period.
Make equivalence calculations for payment periods shorter than the compounding period.
Make equivalency calculations Shorter than the compounding period
Use a spreadsheet to perform equivalency computations involving nominal and effective
interest rates.
Assigned Reading:
1. Chapter 3 in your textbook
2. Review the W3 key terms: Nominal and Effective Interest Rates
3. View W3 Lecture
4. View W3 Video Lectures
Activities
1. Participate in the W3 discussion Why is it necessary to have a nominal and effective interest
rate?
2. Complete the W3 Assignment