effective interest rate based on your payment periods. Last, convert the effective rate to the nominal rate based on the bank’s compounding periods.
Example: Balance of a Savings Account. Starting today, you make monthly deposits of $25 into an account paying 5% interest compounded daily
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365 | |
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| compounding periods. |
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5 | |
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| interest rate. |
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| Calculates effective interest | ||||||
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| rate for daily compounding. |
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12 | |
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| per year. |
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| nominal interest rate for |
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| monthly compounding. |
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| NOM% value is still in | ||||||||
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| calculator line. |
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| interest rate in I%YR. |
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6: Interest Rate Conversions | 89 |
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