Nominal and Effective Interest Rates - Worked Examples

Example 1 — Find the monthly rate for 12% nominal annual interest compounded monthly.

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Example 2 — Find the effective annual rate for 12% nominal compounded monthly.

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Example 3 — Find the effective annual rate for 12% nominal compounded quarterly.

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Example 4 — Which is the lower borrowing rate: 12% nominal monthly or 12.4% effective annually?

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Example 5 — Find the nominal rate compounded monthly equivalent to a 10% effective annual rate.

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Example 6 — Find the effective quarterly rate equivalent to 8% effective annually.

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Example 7 — A project has monthly cash flows and a 9% nominal annual rate compounded monthly. What rate and period count are used for 2.5 years?

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Example 8 — Find the EAR of 10% nominal continuously compounded.

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Example 9 — Find the continuously compounded nominal rate equivalent to 8% effective annually.

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Example 10 — Verify two rate specifications by one-year accumulation on PHP 1,000,000.

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Example 11 — A cash-flow rate of PHP 240,000/year is received continuously for 5 years while interest compounds continuously at r = 8%/year. Find present worth.

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Example 12 — Instead, PHP 240,000 is paid only at each year-end for 5 years while interest still compounds continuously at r = 8%/year. Find present worth and compare with Example 11.

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