Effective Annual Interest Rate
 | Definition of 'Effective Annual Interest Rate'An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: |
 | Investopedia explains 'Effective Annual Interest Rate'Consider a stated annual rate of 10%. Compounded yearly, this rate will turn $1000 into $1100. However, if compounding occurs monthly, $1000 would grow to $1104.70 by the end of the year, rendering an effective annual interest rate of 10.47%. Basically the effective annual rate is the annual rate of interest that accounts for the effect of compounding. |
Friendly reminder that this will be required for CFA Level 3 Exam.
No comments:
Post a Comment