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Effective Annual Interest Rate |
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Effective annual interest rate An annual measure of the time value of money that fully reflects the effects of compounding. Effective Annual Interest Rate ![]() What Does Effective Annual Interest Rate Mean? The annual rate of interest of an investment when compounding occurs more often than once a year. It is calculated as follows: Investopedia explains Effective Annual Interest Rate Consider a stated annual rate of 10%. Compounded yearly, this rate will turn $1,000 into $1,100. However, if compounding occurs monthly, $1,000 will grow to $1,104.70 by the end of the year, for an effective annual interest rate of 10.47%. Basically, the effective annual rate is the annual rate of interest that accounts for compounding. Related Terms: 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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Under the terms of the lease financing deal, the bank has agreed to finance the cost of the rig at an effective annual interest rate of approximately 13%. In general, the effective annual interest rate for a RAL can range from about 50 percent to nearly 500 percent. MBNA claimed that determining the effective annual interest rate that it received for each transaction (and thus, its liability) would have to be done manually at high cost. |
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