The interest rate expressed as if it were compounded once per year is called the _____ rate.

Question

Quizplus · Accepted Answer

The effective annual rate takes into account the effect of compounding over the course of a year, and is therefore the actual rate that will be earned or paid on an investment or loan. Stated interest rate simply refers to the rate that is advertised or quoted by a financial institution, while compound interest refers to the process of earning interest on the principal amount as well as any previously earned interest. Periodic interest refers to the rate at which interest is calculated and added to a loan or investment at regular intervals, such as monthly or quarterly. Daily interest refers to the rate at which interest is calculated and added to a loan or investment on a daily basis.

The Interest Rate Expressed as If It Were Compounded Once