**Divide the annual interest rate by 12 to find the monthly interest rate**. For example, if a bank quotes you a 6 percent annual percentage rate, divide 6 by 12 to find that the monthly interest rate is 0.5 percent.

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## How do you find the equivalent interest rate?

If you receive a certain amount of interest at the end of the year for a given investment, you may determine its equivalent interest rate by using the formula: **i = Int / C**, where Int is the amount of interest received and C is the capital amount of your investment.

## How do you find the equivalent monthly rate?

To convert an annual interest rate to monthly, **use the formula “i” divided by “n,” or interest divided by payment periods**. For example, to determine the monthly rate on a $1,200 loan with one year of payments and a 10 percent APR, divide by 12, or 10 ÷ 12, to arrive at 0.0083 percent as the monthly rate.

## How do you calculate EIR?

- Effective annual interest rate = (1 + (nominal rate / number of compounding periods)) ^ (number of compounding periods) – 1.
- For investment A, this would be: 10.47% = (1 + (10% / 12)) ^ 12 – 1.
- And for investment B, it would be: 10.36% = (1 + (10.1% / 2)) ^ 2 – 1.

## What interest rate is equivalent?

This brings up the concept of equivalent interest rates, which are **interest rates with different compounding that produce the same effective rate and therefore are equal to each other**. After one year, two equivalent rates have the same future value.

## What does 3% AER mean?

AER stands for **annual equivalent rate**. … The higher the AER, the greater the return. For example, two accounts advertise they pay 5 per cent a year, but one credits all the interest at the end of the year and the other pays you 2.5 per cent every six months.

## What is the formula for APR?

The formula for calculating APR is **A = (P(1+rt))**, where A = total accumulated amount, P = principal amount, r = interest rate, and t = time period.

## What is equivalent simple interest rate?

Equivalent interest rates are **interest rates that produce the same future value after one year**. For example, 10% compounded quarterly and 10.125% compounded semiannually are equivalent nominal interest rates.

## What is the equivalent annual simple rate of interest?

Annual Equivalent Rate or AER is the **rate of interest an investor gets for a fixed deposit for a year on a yearly basis**. By definition, Annual Equivalent Rate or AER is a figure which shows what the interest rate on an account would be if interest was paid for a full year and compounded.

## What is a nominal annual rate?

The nominal interest rate is **the periodic interest rate times the number of periods per year**. For example, a nominal annual interest rate of 12% based on monthly compounding means a 1% interest rate per month (compounded).

## What is semi annual payment?

What Is Semiannual? Semiannual is an adjective that describes something that is paid, reported, published, or **otherwise takes place twice each year**, typically once every six months.

## What is EIR method?

What Is the Effective Interest Method? The effective interest method is an **accounting standard used to amortize, or discount a bond**. This method is used for bonds sold at a discount, where the amount of the bond discount is amortized to interest expense over the bond’s life.

## What is loan effective interest rate?

The effective interest rate (EIR), effective annual interest rate, annual equivalent rate (AER) or simply effective rate is **the interest rate on a loan or financial product restated from the nominal interest rate** and expressed as the equivalent interest rate if compound interest was payable annually in arrears.

## What is a equivalent rate?

A rate is a type of ratio that compares two quantities that have different units of measurement. … Different rates that have the same value are equivalent rates. You can find an equivalent rate the same way you find equivalent ratios—**divide or multiply the numerator and the denominator by the same number**.

## What is the rate of interest compounded monthly which is equivalent to an AER of 6%?

Annual Equivalent Rates of Different Compounding Frequencies | ||
---|---|---|

Nominal Interest Rate | Semi-Annually | Monthly |

4% | 4.0400% | 4.0742% |

5% | 5.0625% | 5.1162% |

6% | 6.0900% | 6.1678% |

## What is equivalent nominal rate?

The nominal rate is **the interest rate as stated**, usually compounded more than once per year. … If two interest rates have the same effective rate, we say they are equivalent.