Lecture (8) Nominal and Effective Interest Rates: Example: Suppose that you invest $1 for 1 year at 18% compounded monthly. How much interest would you earn? Effective Annual Interest Rate (Yield) Example: 18% compounded monthly Practice Problem: Suppose your savings account pays 9% interest compounded quarterly. Interest rate per quarter Annual effective interest rate (ia) If you deposit $10,000 for one year, how much would you have? Effective Interest Rate per Payment Period with Continuous Compounding Example: 12% compounded continuously (a) effective interest rate per quarter (b) effective annual interest rate