# Effective rate

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## Effective rate

A measure of the time value of money that fully reflects the effects of compounding.

## 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 Rate

The interest rate adjusted for intra-year compounding.

Because interest on a mortgage is calculated monthly, a 6% mortgage actually has a rate of .5% per month. If there were no principal repayments the first year, \$100 invested in a 6% mortgage would actually earn \$6.17 of interest during the year because of reinvestment of monthly interest. The “effective rate” is thus 6.17%, while 6% is termed the “nominal” rate. Similarly, a 6% bond on which interest is paid quarterly has an effective rate of 6.14%.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
References in periodicals archive ?
Therefore, the reason for the condition that the effective rate at 24h after thrombolysis is lowest when the blood glucose before thrombolysis is under 6.0mmol/L may be due to the insufficient supply of energy needed by the brain, which, resulting from low blood glucose fails to realize energy supply during rt-PA thrombolysis and eventually causes poor effect.
The difference of total effective rates between Group B and Group C was not statistically significant.
Relative risks (RR) were calculated for the dichotomous outcome of effective rate; and mean differences (MD) were calculated for the continuous outcomes of pain assessment and the level of PGF2[alpha] in serum, both with 95% confidence intervals.
States with an effective rate review program conduct the review and make this determination, but CMS plays this role for states with ineffective rate review programs.
The effective rate of tax in this scenario is 60 per cent.
"There may be reasons why your effective rate of tax is correct.
"Export taxes on biodiesel come down from (an effective rate of) 24 per cent to 19.11 per cent," Kicillof said, adding that tax rates would be adjusted every 15 days to take into account the spread between global biodiesel and soyoil prices.
Therefore, if a distribution company spends less on capex than the amount assumed by the regulator, the effective rate of return on its actual RAB (which corresponds to actual investments) will be higher than the statutory rate of return (the opposite is also true).
The effective rate of duty, which is around 11%, shall now not be paid by the garment exporters of India.
But in addition to a little more than a \$10 million boost in sales, the company was able to pay nearly \$3.5 million less in taxes, cutting its effective rate down from 38.2 percent to 27.6 percent.
The draft Finance Act 2011 also provides for raising the ceiling for eligibility to the effective rate system from 100 thousand dinars to 150 thousand dinars for service activities and 300 thousand dinars for other activities and in the context of consistency with the flat rate scheme.

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