The stated APR with compoundings is called the NOMINAL interest rate (NOM) So if your savings...

Transcribed Image Text:

The stated APR with compoundings is called the NOMINAL interest rate (NOM) So if your savings account earns 2% compounded quarterly, then we would say the Nominal Interest rate is 2% We also know that beecause of compounding interest, you would earn more than 2% by the end of the year since interest will be eamed quarterly and interest will be earned on the prior interest. The actuel percentage eamed at the end of the year, after all compoundings, is called the EFFECTIVE Interest Rate (EFF), Effective Interest Rate, or otherwise known as the EAR (Effective Annual Rate) or APY (Annual Percentage Yield), is the one year sample interest rate that incorporate both the APR AND the compoundings Here is a video explanation: Difference between APY and APR Your financial calculator has tools that allow you to easily caculate an effective rate of interest when you know the Annual Rate and the number of compoundings per year Instructions for TI-BA II Plus calculator: 1) Enter ICONV worksheet [2nd][2] 2) While in the worksheet use the up/down arrows to scroll between variables 3) Enter Nominal (annual) interest role NOM 4) Enter Number of Compoundings per year. C/Y 5) Scroll to find Effective Interest Rate EFF Here is a video for the TI BAR Plus BAILPs Nominal and Effective Bate Conversions Instructions for TI 83/84 Plus calculators: 1) Find the EFF command line Apps1 Finance EnterC EmEnter 2) Enter values into the command sine 1-Effinom rate, C Here is a video for the Ti 83/84 11 384 Effective Rate: Find the Effective Interest rates for each of the following Round answers to 3 decimal places a) 4.5% annual interest rate compounded semi-annually b) 3% annual interest rate compounded monthly% c) 10% annual terest rate compounded daily Fal check The stated APR with compoundings is called the NOMINAL interest rate (NOM) So if your savings account earns 2% compounded quarterly, then we would say the Nominal Interest rate is 2% We also know that beecause of compounding interest, you would earn more than 2% by the end of the year since interest will be eamed quarterly and interest will be earned on the prior interest. The actuel percentage eamed at the end of the year, after all compoundings, is called the EFFECTIVE Interest Rate (EFF), Effective Interest Rate, or otherwise known as the EAR (Effective Annual Rate) or APY (Annual Percentage Yield), is the one year sample interest rate that incorporate both the APR AND the compoundings Here is a video explanation: Difference between APY and APR Your financial calculator has tools that allow you to easily caculate an effective rate of interest when you know the Annual Rate and the number of compoundings per year Instructions for TI-BA II Plus calculator: 1) Enter ICONV worksheet [2nd][2] 2) While in the worksheet use the up/down arrows to scroll between variables 3) Enter Nominal (annual) interest role NOM 4) Enter Number of Compoundings per year. C/Y 5) Scroll to find Effective Interest Rate EFF Here is a video for the TI BAR Plus BAILPs Nominal and Effective Bate Conversions Instructions for TI 83/84 Plus calculators: 1) Find the EFF command line Apps1 Finance EnterC EmEnter 2) Enter values into the command sine 1-Effinom rate, C Here is a video for the Ti 83/84 11 384 Effective Rate: Find the Effective Interest rates for each of the following Round answers to 3 decimal places a) 4.5% annual interest rate compounded semi-annually b) 3% annual interest rate compounded monthly% c) 10% annual terest rate compounded daily Fal check