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