Method = 1

Nominal Rate =

Effective Rate =

Compounds/Year = 12

Used to compare (or convert) interest rates when two investments have different compounding periods. Normally, investments are stated in terms of annual, nominal interest rates. Use effective rates to compare investments.

To calculate, enter the data you know then select ? button on the row you don't.

- Method: Conversion method, either continuous or periodic. With periodic interest conversion, there is a set number of compounding periods per year, such as quarterly (4 times per year), monthly (12), or yearly (1). With continuous compounding, there is no set number of periods per year.

- Nominal Rate: Annual, nominal interest rate expressed as a percentage.

- Effective Rate: Annual, effective interest rate expressed as a percentage.

- Compounds/Year: Number of compounding periods per year. For example, if interest is compounded quarterly, this value would be set to "4". Compounding periods per year is used only when the method is set to periodic.

You are presented with two competing investments. The first is compounded monthly with a nominal interest rate of 9.75%. The other pays at an effective interest rate of 10%. Which investment has a better interest rate?

- Method: Periodic

- Nominal Rate: 9.75%

- Compounds/Year: 12

Select ? on Effective Rate row. The first investment's effective rate is 10.198%. It has the better interest rate.

Method

Nominal Rate

Effective Rate

Compounds/Year

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Effective Interest Rate

Nominal Interest Rate