About Nominal Interest Rate Formula
Let's review what the term "nominal interest rate" means before getting started with the formula. It is the interest rate before inflation is taken into consideration. Nominal can also refer to the stated or promoted interest rate on a loan, excluding any fees or interest compounding.
The nominal interest rate formulas are listed below. It's worth noting that the formula differs for small I values. The general formula for the nominal interest rate is as follows:
1 + R = (1 + r)(1 + i)
For small values of the i, the formula can be rewritten as follow:-
R = r + i
Effective Interest Rate (or Effective Annual Rate)???????
Effective Annual Rate (E.A.R. or Effective Interest Rate) = (1 + R/n)n- 1
- R - nominal interest rate per period
- r - real interest rate
- i- inflation rate
- n - number of compounding periods
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