Converting between nominal and effective rates
Introduction. The interest rate has many types in finance: real, nominal, effective, annual and so on. The difference between Nominal and Effective Rates (Two of the most used types of rates) is based on various economy factors and can generate a serious dollar value difference, and therefore, it is extremely important to understand the difference and be able to calculate it quickly and easily. Nominal and Effective Interest Rates. Go to questions covering topic below. An interest rate takes two forms: nominal interest rate and effective interest rate. The nominal interest rate does not take into account the compounding period. The effective interest rate does take the compounding period into account and thus is a more accurate