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  • Effective Int Rates

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    Michael Seer
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    The document discusses two models for calculating effective interest rates. Model 1 shows how the effective annual interest rate increases as the annual percentage rate (APR) increases from 12% to 15%, while keeping the compounding frequency monthly. Model 2 shows how the effective annual interest rate increases as the compounding frequency increases from annual to quarterly to semi-annual, while keeping the APR at 12%.

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    Effective rate

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    EffectiveIntRates

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    The document discusses two models for calculating effective interest rates. Model 1 shows how the effective annual interest rate increases as the annual percentage rate (APR) increases from 12% to 15%, while keeping the compounding frequency monthly. Model 2 shows how the effective annual interest rate increases as the compounding frequency increases from annual to quarterly to semi-annual, while keeping the APR at 12%.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    4 views4 pages

    Effective Int Rates

    Uploaded by

    Michael Seer
    The document discusses two models for calculating effective interest rates. Model 1 shows how the effective annual interest rate increases as the annual percentage rate (APR) increases from 12% to 15%, while keeping the compounding frequency monthly. Model 2 shows how the effective annual interest rate increases as the compounding frequency increases from annual to quarterly to semi-annual, while keeping the APR at 12%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 4

    Model 1: Effect of APR on Effective Interest Rate, at Constant M

    APR 12% 14% 15%

    Compounding Frequency Monthly Monthly Monthly

    Compounding Frequency (M)

    Effective Interest Rate per


    Compoundig Period (APR/M)

    Effective Annual Interest Rate


    16%

    Monthly
    Model 2: Effect of Compounding Frequency on Effective Interest Rate, at Constat APR

    APR 12% 12% 12%

    Compunding Frequency Annual Semi Annual Quarterly

    Compounding Frequency (M)

    Effective Interest Rate per


    Compoundig Period (APR/M)

    Effective Annual Interest Rate


    Rate, at Constat APR

    12% Effect of Frequency of Compounding on Ef -


    fective Annual Interest Rate
    Daily 1200.00%

    1000.00%

    800.00%

    600.00%

    400.00%

    200.00%

    0.00%

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