effective interest rate

(redirected from Effective Interest)
Also found in: Wikipedia.

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 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 INTEREST RATE payable on the purchase price of a BOND. For example, a bond with a face value of £100 and a NOMINAL (COUPON) INTEREST RATE of 5% generates a nominal return of £5 per year. If, however, the bond can be purchased for £50 on the open market, then the effective interest rate now rises to 10%, representing a 10% return on the £50 invested. The lower the purchase price of a bond with a given nominal rate of interest, the higher its effective rate of interest will be, and vice-versa. There is thus an inverse relationship between the price paid for a bond and its effective rate of interest (sometimes called the interest 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.

References in periodicals archive ?
Core earnings (and by calculation, core earnings per common share), effective interest income (and by calculation, effective yield), effective interest expense (and by calculation, effective cost of funds), effective net interest income (and by calculation, effective interest rate margin), effective debt-to-equity ratio and repurchase agreement debt-to-equity ratio are non-Generally Accepted Accounting Principles ("GAAP") financial measures.
83 percent per month, or about 10 percent effective interest rate annually.
The decision by the ECB to pump 60bn euros (PS45bn) a day into government bonds and other assets lowers the effective interest to be earned on euros and pushes investors into other currencies.
The move by the ECB to pump 60bn euros (PS45bn) a day into government bonds and other assets lowers the effective interest to be earned on euros and pushes investors into other currencies.
According to the SBP statement the banks have been directed to supply specimen of the Summary Box containing the minimum information relating to Annualized Percentage Rate (APR), effective interest rates, alongwith minimum monthly repayments, card limits, fees & charges, insurance coverage, etc.
This is the actual interest rate the borrower is paying and thus is the effective interest rate.
Using proceeds from its initial public offering, cash on hand and incremental first lien facilities, the company repaid its USD315m second lien term loan and secured a lower effective interest rate.
Instead of introduction of restrictions for interest rates, the regulatory framework should mandate submission of the information on annual effective interest rate and full cost of the micro-loan for microfinance organizations.
Another way to compare loans with varying terms is to calculate effective interest rates (EIR).
The Interest Rate Swap is for 5 years, enabling the Company to fix the effective interest costs of the [pounds]15 million loan over its term at 4.
34 for 80 percent loan-to-value ratio loans, meaning the effective interest rate decreased week-over-week.
M-Wave International LLC, the company formed by the two execs, will also assume all operating liabilities, and will extend a $500,000 operating term loan with an effective interest rate of 12% due Dec.

Full browser ?