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Effective Annual Interest Rate |
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Effective Annual Interest Rate An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:  Notes: Consider a stated annual rate of 10%. Compounded yearly, this rate will turn $1000 into $1100. However, if compounding occurs monthly, $1000 would grow to $1104.70 by the end of the year, rendering an effective annual interest rate of 10.47%. Basically the effective annual rate is the annual rate of interest that accounts for the effect of compounding. Effective annual interest rate An annual measure of the time value of money that fully reflects the effects of compounding. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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There are four ongoing components to the effective annual interest rate of the bonds. Unfortunately, most consumers do not realize they are actually taking out a loan with an effective annual interest rate of up to 700% 5 percent of principal amount, resulting in an effective annual interest rate of 5. |
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Effective Annual Interest Rate