Name: Đặng Vũ Lam Mai

ID: 1712280036
Class: Anh 1 – CTTTQT – K56

INTRODUCTION TO INVESTMENT
26/03 ASSIGNMENT
1. Simple interest rate vs. Compound interest rate

Factors Simple interest rate Compound Interest Rate

Is calculated on the principal
only
Definition
Simple interest in each time
period remains the same
Simple Interest=P*r*n
where:
Formula P = Principal amount
r = Annual interest rate
n = Term of loan (years)
Is calculated in both principal and the
accumulated interest of prior periods
Compound interest increases after
each time period
Compound Interest=P*(1+r )t - P
where:
P = Principal amount
r = Annual interest rate
t = Number of years interest is
applied

2. Annual percentage rate vs. Effective annual rate

Factors Annual percentage rate (APR) Effective annual rate (EAR)

how much interest you will really
the total amount of interest you
Definition owe or receive once compounding is
pay on a borrowed sum per year
considered
APR = r (in %) r n
EAR = (1+ ) - 1
Monthly = r/12 n
Daily = r/365 Where:
Formula
r = nomimal interest rate r = Nominal interest rate of interest
n = number of compounding periods
per year

3. Nominal rate vs. Real rate

Factors Nominal rate Real rate

A real interest rate is the interest rate
A nominal interest rate refers to
that takes inflation into account. This
Definition the interest rate before taking
means it adjusts for inflation and
inflation into account.
gives the real rate of a bond or loan.
Formula Nominal interest rate = Real interest rate + Inflation Rate