Finance Assignment Help With Effective Interest Rate

3.2 Effective Interest Rate

Interest rates may be quoted for days, months, years, or any convenient interval. For example banks may quote a savings rate of 12%, compounded quarterly rather than 2% per quarter. The rate of interest the investor actually realises as a result of compounding is known as the effective interest rate or effective annual rate.

EAR represents the annual rate of return actually being earned after adjustments has been made for different compounding periods.

EAR may be defined in formula as:

Finance Assignment Help Order Now

effective interest rate

Where,

Periodic rate = stated annual rate/m

m = number of compounding periods per year

The computation of EAR is necessary when comparing investments that have different compounding periods. It allows for an equal basis for comparison.

Example:

Using a stated rate of 6%, compute the EARs for various compounding periods.

finance-homework-help

Email Based Assignment Help in Effective Interest Rate

Following are some of the topics in Time Value of Money in which we provide help:

Corporate Finance Homework Help | Finance Assignment Help | Finance course help | Finance Homework Help | Finance Online Help | Finance Problems Help | Finance Tutor | Help With Finance Homework | Online Tutoring