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effective interest rate
(redirected from Annual Effective Rate)

   Also found in: Wikipedia 0.01 sec.
Effective Interest Rate
The annual rate at which an investment grows in value when interest is credited more often than once a year.

Effective Interest Rate
The interest rate on a debt or debt security that takes into account the effects of compounding. For example, if one has a fixed-income investment such as certificate of deposit that pays 3% in interest each month, the effective interest rate is more than 3% because compounding the interest results in a (slightly) greater principal each month on which the interest rate is calculated. In this example, the effective interest rate rate is calculated thus:

Effective interest rate = (1 + .03/12)^12 - 1 = .0304 = 3.04%, where .03 is the simple interest rate and 12 is the number of times in a year interest is compounded. It is also known as the annual effective rate or the annual equivalent rate. See also: Stated annual interest rate, annual percentage yield.

effective interest rate

The actual interest rate of a loan,regardless of the face interest rate or the rate quoted.See annual percentage rate.



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The loan capital shall be repaid in full after 7 years and shall bear variable interest plus the costs that Koor shall be responsible for, resulting in an estimated annual effective rate, based upon today's LIBOR rate, of about 6%.
All advertisements for savings accounts must display the interest rate as an annual effective rate, as well as the flat rate of interest.
The change in the Company's annual effective rate reflects, among other items, our best estimates of operating results and foreign currency exchange rates.
 
 
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