The effective interest rate is the interest rate on a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest payable in arrears. The interest rates announced today are computed from the federal short-term rate … Where: r = effective interest rate. R=effective interest rate I=simple interest  2018/08/18 18:51 Male / 20 years old level / An office worker / A public employee / Very / Purpose of use = ((1 + 0.03258)^1/365 – 1) * 365 = 0.03206 or 3.206% nominal rate Converting an effective rate to a nominal rate … It is also called effective annual interest rate, annual equivalent rate (AER) or simply effective rate." { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [{ "@type": "Question", "name": "What is Effective Interest Rate? Investors and borrowers should also be aware of the effective interest rate, which takes the concept of compounding into account. Of this amount, \$4,000 is paid in cash and \$744.10 (\$4,000 – \$3,255.90) is premium amortization. As it turns out, a 12% APR (nominal) interest loan has an effective (APY) interest rate of about 12.68%. Chapter 1: Welcome to the World of Accounting, Chapter 6: Cash and Highly-Liquid Investments, Chapter 11: Advanced PP&E Issues/Natural Resources/Intangibles, Chapter 12: Current Liabilities and Employer Obligations, Chapter 15: Financial Reporting and Concepts, Chapter 16: Financial Analysis and the Statement of Cash Flows, Chapter 17: Introduction to Managerial Accounting, Chapter 18: Cost-Volume-Profit and Business Scalability, Chapter 19: Job Costing and Modern Cost Management Systems, Chapter 20: Process Costing and Activity-Based Costing, Chapter 21: Budgeting – Planning for Success, Chapter 22: Tools for Enterprise Performance Evaluation, Chapter 23: Reporting to Support Managerial Decisions, Chapter 24: Analytics for Managerial Decision Making. But in the loan contract will continue … The nominal percent is 1.6968% * 12 = is 20.3616%. The following is the calculation formula for the effective interest rate:

r = [1 + (i/n)]^n - 1

Where:
r = effective interest rate
i = nominal annual interest rate
n = number of compounding periods per year (for example, 12 for monthly compounding)

If the compounding is continuous, the calculation will be:

r = e^i - 1

Where:
r = effective interest rate
i = nominal annual interest rate
e = 2.71828183

r = [1 + (i/n)]^n - 1

Where:
r = effective interest rate
i = nominal annual interest rate
n = number of compounding periods per year (for example, 12 for monthly compounding)

If the compounding is continuous, the calculation will be:

r = e^i - 1

Where:
r = effective interest rate
i = nominal annual interest rate
e = 2.71828183