Nominal and Effective Interest Rates

How do you get monthly interest rate from APR per day?

1. Convert to APY Eff(APRd, 365) 2. Convert to APRm Nom(APY, 12) 3. i monthly=APR monthly/ (months per year)

Effective Annual Interest Rate on exel

=EFFECT(r, m) gives you yearly

future value

=P(1+i)^N

Is the interest rate on your calculator APR or APY?

APR

Nominal interest rate on excel

NOM(effective interest rate, m) put in yearly, gives you daily, monthly, etc m=number of periods in a year

Nominal APR v. effective APR

Nominal APR is the simple interest rate you pay over one year. For example, if you're paying 1% interest on a loan every month then your nominal APR is 12%. Effective APR is the amount you pay after fees and compound interest have been added to the charges. E.G: your nominal interest rate may be set at 1% per month but, with fees and charges, your APR might be 17.9%

compute effective rate per payment period

Nominal/# of pmts

How often is APY compounded?

Once per year

Is APY nominal or effective?

effective

interest periods

i=(1+r/(cpy))^(cpy/ppy) -1

Effective Annual Interest Rate

r=nominal interest rate per year EAR=Effective annual interest rate M=number of pay periods