标题: Nominal and effective interest rate [打印本页] 作者: studyn 时间: 2016-4-17 15:16 标题: Nominal and effective interest rate
Annual rate is also called as nominal rate, may be 6 monthly, quarterly, monthly or daily. Actual annual rate of interest, called the effective rate or annual percentage rate, it always more than nominal rate.
Annual percentage rate=[1+r/n)^n -1]*100%
n= number of equal compounding periods in one year.
(1+monthly rate)^ 12-1=Annual rate
The effects of inflation on rate of return
(1+nominal rate)= (1+ real rate)*(1+inflation rate)
(1+n)= (1+ r)*(1+i)
Interest rate is referred to a number of interchangeable terms:
The time value of money
Cost of capital
Discount rate
Required return
