1. Effective Rate Of Interest (for investing)

2. Because interest rates are applied in different ways, comparing them can be misleading. A flat rate of 5% p.a. cannot be compared to a rate of 6% compounding monthly. We need to convert the rates to an annualised rate – that is the equivalent rate if it was compounding once per year.

3. Converting a Compound / Nominal Rate If a rate is compounding (also referred to as nominal) we can use the Graphic calculator to find the effective rate. You need to be able to have the nominal rate and the number of compounding periods per year.

4. Use Graphic Calculator Go to TVM F5 – Conversions Enter: N = 12 I% = 4 Then push F1 and the effective rate is displayed – 4.07%

5. Simple Interest to Effective Rate You need the time and the flat rate of interest Find the interest earnt The using the GC use the compound interest section and find I Follow example from board