Effective Interest

Examples of Effective Interest in the following topics:

• Calculating Values for Different Durations of Compounding Periods

  • Finding the Effective Annual Rate (EAR) accounts for compounding during the year, and is easily adjusted to different period durations.
  • But suppose you want to convert the interest rate into an annual rate.
  • The EAR can be found through the formula in where i is the nominal interest rate and n is the number of times the interest compounds per year (for continuous compounding, see ).
  • You can think of it as 2% interest accruing every quarter, but since the interest compounds, the amount of interest that actually accrues is slightly more than 8%.
  • The effective annual rate for interest that compounds more than once per year.

• Presenting Print Ads Effectively

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• Analyzing Commercial Effectiveness

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