The effective annual interest rate is the interest rate earned on investment or loan compounded over a period of time i.e generating earnings from previous earnings. It is also called as annual equivalent rate. Calculate the effective period rate and effective interest rate based on the annual interest rate, number of compounding periods per year using Effective Annual Interest Rate Calculator.
The effective annual interest rate is the interest rate earned on investment or loan compounded over a period of time i.e generating earnings from previous earnings. It is also called as annual equivalent rate. Calculate the effective period rate and effective interest rate based on the annual interest rate, number of compounding periods per year using Effective Annual Interest Rate Calculator.
What is the effective period rate and effective rate for nominal annual interest rate of 2% compounded monthly?
Effective period rate = i/p
=2/12
=0.1667 % per Months
Effective interest rate = (1+e/p)p-1
=(1+0.1667/12)12-1
=2.0184 % per Year
Calculating effective annual interest rate is important in finance because it is compared with different products that calculate compounded interest differently.
