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ainster31
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Is there any way to derive an equation for compound interest based on effective interest rate instead of the nominal interest rate?
phinds said:Why would the equation for the effective rate be any different than the equation for the nominal rate ?
ainster31 said:I am aware of this equation for compound interest based on nominal interest:
$$F=P{ e }^{ rt }\\ where\quad r=nominal\quad annual\quad interest\\ and\quad t=number\quad of\quad years$$
How would I modify it for effective interest?
bahamagreen said:See if this helps...
Difference Between Nominal & Effective Interest Rates
http://www.ehow.com/info_8149388_difference-nominal-effective-interest-rates.html
ainster31 said:I am aware of this equation for compound interest based on nominal interest:
$$F=P{ e }^{ rt }\\ where\quad r=nominal\quad annual\quad interest\\ and\quad t=number\quad of\quad years$$
How would I modify it for effective interest?
Compound interest is calculated by multiplying the principal amount by the interest rate, raising it to the number of compounding periods, and adding any additional contributions or withdrawals.
The compound interest formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal amount, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.
Simple interest is calculated by multiplying the principal amount by the interest rate and the number of years. Compound interest takes into account the interest earned in previous periods and adds it to the principal for future interest calculations.
The more frequent the compounding, the higher the interest earned. For example, a 5% annual interest rate with monthly compounding will yield more interest than annual compounding.
No, compound interest cannot be negative. It is always a positive value that represents the interest earned on the principal amount.