Effective Annual Interest Rate
- Effective Annual Interest Rate
- An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
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.
Investment dictionary.
Academic.
2012.
Look at other dictionaries:
Effective annual interest rate — An annual measure of the time value of money that fully reflects the effects of compounding. The New York Times Financial Glossary … Financial and business terms
effective annual interest rate — An annual measure of the time value of money that fully reflects the effects of compounding. Bloomberg Financial Dictionary … Financial and business terms
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