The nominal rate of interest is the quoted rate. The effective rate accounts for the impact of compounding. An investment could be quoted at 5.5% compounded semi-annually and another investment can be quoted at 5.5% compounded daily. The amount returned will certainly be different, though the quoted rate is the same. When comparing rates, take the nominal rate and convert it to an effective rate. Enter the nominal rate and 0 for the effective rate. 5.5% compounded semi-annually results in an effective rate of 5.5756%. 5.5% compounded daily results in an effective rate of 5.6536% (assuming a 360 day year). Given an effective rate, calculate the nominal rate by entering 0 for nominal rate. The calculator calculates effect rates for several compounding frequencies at one time.

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