51:
1387:(APR) and effective interest rate, is that the effective interest rate includes the compounding effect, while APR assumes the payee has paid off all interest on a loan each month. Additionally, the APR method, depending on legal jurisdiction, reflects other factors that may effect the cost of a loan such as including fees that may be charged as a part of a loan. Effective interest is the standard in the European Union and many other countries, while APR is often used in the United States.
923:
911:
1096:
For example, a nominal interest rate of 6% compounded monthly is equivalent to an effective interest rate of 6.17%. 6% compounded monthly is credited as 6%/12 = 0.005 every month. After one year, the initial capital is increased by the factor (1 + 0.005) ≈ 1.0617. Note that the yield
1002:. It is used to compare the interest rates between loans with different compounding periods. In a situation where a 10% interest rate is compounded annually, its effective interest rate would also be 10%.
1091:
1175:
1146:
1423:
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1402:. Since a loan by a borrower is an investment for the lender, both terms can apply to the same transaction, depending on the point of view. For a
870:
831:
796:
1422:
In accountancy, the term effective interest rate is used to describe the rate used to calculate interest expense or income under the
953:
609:
1010:
The effective interest rate is calculated as if compounded annually. The effective rate is calculated in the following way, where
1407:
1100:
When the frequency of compounding is increased up to infinity (as for many processes in nature) the calculation simplifies to:
1028:
1470:
1414:
may be specified instead of an effective interest rate, because zero coupon bonds trade at a discount from their face values.
1440:
17:
1489:
622:
781:
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accumulates in periods different than a year. It is the compound interest payable annually in arrears, based on the
503:
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173:
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118:
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999:
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228:
1426:. This is not the same as the effective annual rate, and is usually stated as an APR rate.
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434:
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293:
245:
88:
8:
1398:
or effective annual yield is the analogous concept for savings or investments, such as a
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the number of compounding periods per year (for example, 12 for monthly compounding):
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83:
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875:
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519:
308:
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323:
183:
42:
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Effective annual rates at different frequencies of compounding
910:
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1086:{\displaystyle r\ =\ \left(1+{\frac {i}{n}}\right)^{n}-1}
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1097:increases with the frequency of compounding.
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832:International Financial Reporting Standards
797:Separation of investment and retail banking
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940:
1490:"What is annual percentage rate (APR)?"
14:
1506:
1390:
1378:
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1463:
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1441:Real versus nominal value (economics)
1418:Effective interest rate (accountancy)
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24:
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994:on a loan or financial product if
871:Private equity and venture capital
782:Bank for International Settlements
25:
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916:Business and Economics portal
1471:"Nominal and Effective Interest"
921:
909:
504:Base erosion and profit shifting
49:
1383:The primary difference between
1183:
27:Precisely defined interest rate
1481:
1412:annual effective discount rate
1014:is the effective annual rate,
1005:
976:effective annual interest rate
264:Collateralised debt obligation
174:Bull (stock market speculator)
13:
1:
1451:
1170:{\displaystyle e\approx 2.72}
1141:{\displaystyle r\ =\ e^{i}-1}
610:Final consumption expenditure
1488:Hurd, Aaron (May 14, 2024).
7:
1429:
10:
1535:
842:Professional certification
440:Enterprise risk management
224:Offshore financial centres
1424:effective interest method
1195:Frequency of compounding
1194:
1189:
787:Financial Stability Board
476:Mergers and acquisitions
1475:Oxford University Press
1446:Internal rate of return
1396:Annual percentage yield
968:effective interest rate
1519:Management cybernetics
1400:certificate of deposit
1385:annual percentage rate
1171:
1142:
1087:
1018:the nominal rate, and
980:annual equivalent rate
278:certificate of deposit
1179:mathematical constant
1172:
1143:
1088:
1000:nominal interest rate
990:is the percentage of
229:Conduit and sink OFCs
18:Effective annual rate
1155:
1107:
1029:
455:Financial statements
435:Credit rating agency
360:Repurchase agreement
1391:Comparison with APY
1379:Comparison with APR
1186:
891:Accounting scandals
881:Stock market bubble
601:Government spending
558:Employment contract
510:Corporate tax haven
269:Credit default swap
1436:Real interest rate
1184:
1167:
1138:
1083:
886:Stock market crash
736:Investment banking
726:Fractional-reserve
691:Warrant of payment
640:Government revenue
563:Financial planning
481:Structured finance
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996:compound interest
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792:Deposit insurance
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430:Corporate finance
425:Capital structure
420:Capital budgeting
355:Performance bonds
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219:Financial centres
179:Financial planner
79:Asset (economics)
16:(Redirected from
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1408:US treasury bill
1404:zero-coupon bond
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525:Transfer pricing
471:Leveraged buyout
445:Enterprise value
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314:Letter of credit
299:Futures contract
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130:Over-the-counter
119:Foreign exchange
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1494:Associate Press
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988:effective rate
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623:Redistribution
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136:Private equity
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777:Basel Accords
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561:
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556:
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550:
547:
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537:
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518:
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515:Tax inversion
513:
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508:
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502:
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482:
479:
477:
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411:
408:
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406:
405:
401:
400:
395:
390:
389:
381:
380:Synthetic CDO
378:
376:
373:
371:
368:
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356:
353:
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199:
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189:institutional
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127:
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117:
115:
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107:
105:
102:
100:
97:
95:
94:Capital asset
92:
90:
87:
85:
82:
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77:
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75:
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71:
68:
67:
62:
57:
56:
52:
48:
47:
44:
41:
40:
36:
32:
31:
19:
1493:
1483:
1474:
1421:
1394:
1382:
1150:
1099:
1095:
1019:
1015:
1011:
1009:
987:
986:) or simply
983:
979:
975:
971:
967:
965:
817:
746:Money supply
731:Full-reserve
716:Central bank
576:Student loan
551: /
463:Transactions
274:Time deposit
160:Participants
89:Asset growth
1212:Continuous
1200:Semi-annual
1192:annual rate
1177:is Euler's
1006:Calculation
284:Credit line
246:Instruments
141:Real estate
104:Derivatives
1508:Categories
1452:References
1406:such as a
814:Regulation
618:Operations
571:Retirement
410:Accounting
294:Derivative
201:Speculator
33:Part of a
1203:Quarterly
1162:≈
1133:−
1078:−
876:Recession
837:ISO 31000
520:Tax haven
394:Corporate
309:Insurance
304:Indemnity
210:Locations
99:Commodity
1430:See also
1372:64.872%
1352:49.182%
1332:34.986%
1312:22.140%
1292:16.183%
1272:10.517%
992:interest
652:Taxation
542:Personal
495:Taxation
370:Security
324:Mortgage
184:Investor
1369:64.816%
1366:63.209%
1363:60.181%
1360:56.250%
1349:49.150%
1346:48.213%
1343:46.410%
1340:44.000%
1329:34.969%
1326:34.489%
1323:33.547%
1320:32.250%
1309:22.134%
1306:21.939%
1303:21.551%
1300:21.000%
1289:16.180%
1286:16.075%
1283:15.865%
1280:15.563%
1269:10.516%
1266:10.471%
1263:10.381%
1260:10.250%
1252:5.127%
1232:1.005%
1206:Monthly
1190:Nominal
904:Outline
708:Banking
672:balance
670: (
402:General
334: (
289:Deposit
109:Domains
61:Markets
43:Finance
1249:5.127%
1246:5.116%
1243:5.095%
1240:5.063%
1229:1.005%
1226:1.005%
1223:1.004%
1220:1.003%
1151:where
1120:
1114:
1042:
1036:
816:
668:Budget
592:Public
549:Credit
506:(BEPS)
341:exotic
332:Option
196:Retail
114:Equity
70:Assets
35:series
1410:, an
1209:Daily
415:Audit
365:Stock
151:Stock
124:Money
1357:50%
1337:40%
1317:30%
1297:20%
1277:15%
1257:10%
1165:2.72
966:The
741:Loan
678:Debt
553:Debt
336:call
319:Loan
259:Cash
254:Bond
146:Spot
84:Bond
1237:5%
1217:1%
984:AER
974:),
972:EIR
346:put
1510::
1492:.
1473:.
1460:^
1181:.
978:,
37:on
1496:.
1477:.
1159:e
1136:1
1128:i
1124:e
1117:=
1111:r
1081:1
1073:n
1068:)
1062:n
1059:i
1054:+
1051:1
1047:(
1039:=
1033:r
1020:n
1016:i
1012:r
982:(
970:(
955:e
948:t
941:v
818:·
674:)
348:)
280:)
276:(
20:)
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