Effective Annual Interest Rate
An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
Investopedia Says:
Consider a stated annual rate of 10%. Compounded yearly, this rate will turn $1000 into $1100. However, if compounding occurs monthly, $1000 would grow to $1104.70 by the end of the year, rendering an effective annual interest rate of 10.47%. Basically the effective annual rate is the annual rate of interest that accounts for the effect of compounding. Related Terms:
Compounding
Dollar Bond Index-Linked Securities - Dollar BILS
Fixed Interest Rate
Interest Rate Ceiling
Nominal Interest Rate
Real Interest Rate
Stated Annual Interest Rate
Variable Interest Rate |