## Nominal and effective interest rates grade 11

The following is the calculation formula for the effective interest rate: If the compounding is continuous, the calculation will be: The effective interest rate table below shows the effective annual rate based on the frequency of compounding for the nominal interest rates between 1% and 50%: 4.1 Notion of a Nominal Interest Rate. • A Nominal Interest Rate, r. • Definition: A Nominal Interest Rate, r, is an interest Rate that does not include any consideration of compounding Nominal means, “in name only”, not the real rate in this case. If you have an investment earning a nominal interest rate of 7% per year and you will be getting interest compounded monthly and you want to know effective rate for one year, enter 7% and 12 and 1. If you are getting interest compounded quarterly on your investment, enter 7% and 4 and 1.

### 05 Nominal and Effective Interest Rates. Mathematics · Grade 11 · Finance, Growth and Decay; 05 Nominal and Effective Interest Rates. ×

This lesson works with nominal and effective interest rates. We use the example of a bank loan to explain more challenging concepts related to interest and depreciation rates.

## This lesson works with nominal and effective interest rates. We use the example of a bank loan to explain more challenging concepts related to interest and depreciation rates.

Nominal interest rate = 5.06%. Relevance and Use. It can be calculated based on the effective annual rate of interest and the number of compounding periods per year.; From an investor’s point of view, it is an indispensable part of investing as it is the interest rate stated on the face of a bond or loan. Calculating Effective Interest Rates. If you know what the nominal, or stated, rate of interest is, you can figure out what your effective rate is with the following formula: Effective Interest Rate (EIR) = (1 + a / b)b – 1 a = nominal rate of interest expressed as a decimal (i.e. enter .10 for 10%) b = number of compounding periods in one year If you have a nominal interest rate of 10% compounded annually, then the Effective Interest Rate or Annual Equivalent Rate is the same as 10%. If you have a nominal interest rate of 10% compounded six-monthly, then the Annual Equivalent rate is the same as 10.25%. Effective Interest Rates: Making Sense or Cents?5 Craig Pournara In the SA school curriculum, effective interest rates are introduced in Grade 11 in both Mathematics and Mathematical Literacy. However, text books generally do not extend their discussion to this case the nominal and effective rates are the same). Based on these Nominal and Effective Interest Rates . 4.1. Nominal and Effective Interest Rate Statements. A nominal interest rate . r. is an interest rate that does not account for compounding. r = interest rate per time period * number of periods . A nominal rate may be calculated for . any time period longer than the time period stated.

This lesson works with nominal and effective interest rates. We use the example of a bank loan to explain more challenging concepts related to interest and depreciation rates. In this case, the nominal annual interest rate is 10%, and the effective annual interest rate is also 10%. However, if compounding is more frequent than once per year, then the effective interest rate will be greater than 10%. The more often compounding occurs, the higher the effective interest rate.