What Is The Difference Between Nominal Rate Of Interest And Effective Rate Of Interest?


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Anonymous Profile
Anonymous answered
That is a horrible answer.. It is confusing as hell.
Lily James Profile
Lily James answered
Nominal interest rate is also defined as a stated interest rate. This interest works according to the simple interest and does not take into account the compounding periods.

Effective interest rate is the one which caters the compounding periods during a payment plan. It is used to compare the annual interest between loans with different compounding periods like week, month, year etc. In general stated or nominal interest rate is less than the effective one. And the later depicts the true picture of financial payments.

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