- Effective annual rate of interest - Glossary Term
The effective annual rate of interest i effective is used to compare the interest paid on loans (or investments) with the same nominal annual interest rate i but with different compounding periods (daily, monthly, quarterly, annually, other)
If the number of compounding periods per annum is n, then
For example if the quoted annual interest rate for a loan is 9%, but interest is charged monthly, then the effective annual interest rate charged is , or around 9.4%.
Diminishing value depreciation see Reducing balance depreciation