Effective interest rate calculation.
So The effective period interest rate is equal to the nominal annual interest rate divided by the number of periods per year n:
Effective Period Rate = Nominal Annual Rate / n
What is the effective period interest rate for nominal annual interest rate of 4% compounded monthly?
Solution:
Effective Period Rate = 4% / 12months = 0.04 / 12 = 0.333%
What is the effective period interest rate for nominal annual interest rate of 6% compounded monthly?
Solution:
Effective Period Rate = 6% / 12months = 0.06 / 12 = 0.500%
What is the effective period interest rate for nominal annual interest rate of 10% compounded monthly?
Solution:
Effective Period Rate = 10% / 12months = 0.10 / 12 = 0.833%
So The effective annual interest rate is equal to 1 plus the nominal interest rate in percent divided by the number of compounding persiods per year n, to the power of n, minus 1.
Effective Rate = (1 + Nominal Rate / n)n - 1
What is the effective annual interest rate for nominal annual interest rate of 4% compounded monthly?
Solution:
Effective Rate = (1 + 4% / 12)12 - 1
= (1 + 0.04 / 12)12 - 1
= 0.04074 = 4.074%
What is the effective annual interest rate for nominal annual interest rate of 6% compounded monthly?
Solution:
Effective Rate = (1 + 6% / 12)12 - 1
= (1 + 0.06 / 12)12 - 1
= 0.06168 = 6.168%
What is the effective annual interest rate for nominal annual interest rate of 10% compounded monthly?
Solution:
Effective Rate = (1 + 10% / 12)12 - 1
= (1 + 0.10 / 12)12 - 1
= 0.04074 = 10.471%
Effective interest rate calculator ►
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