Nominal annual rate


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Nominal annual rate

An effective rate per period multiplied by the number of periods in a year. Same as annual percentage rate.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Annual Percentage Rate

The cost of funds or interest rate for an entire year expressed as a single percentage. Significantly, the APR does not account for compounding. For example, if the APR is 36%, the percentage is 3% per month, but the interest rate or cost of funds for the entire year may be greater than 36% due to the effects of compounding. By law, a credit card company or other lender must inform the customer of the APR before any agreement is signed. The APR provides the customer with a convenient number against which to compare the cost of funds for other loans or investments. It is less commonly called the annual rate of return or the nominal annual rate.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved