Explain What the Effective (Or Equivalent)annual Interest Rate Is and Why

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The Answer is The effective annual interest rate is used when comparing interest rates of different compounding periods.It is basically the nominal rate expressed as an annual rate, taking into account the effect of compounding.If you invested $1 for one year at 10% compounded quarterly, at the end of the year you would have $1.1038.Therefore, the effective annual rate is 10.38%.

Explain What the Effective (Or Equivalent)annual Interest Rate Is and Why

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