Question

Distinguish between quoted interest rate, interest rate per period, and effective annual interest rate.

Answer 1

Quoted Interest rate means the rate at which the interest will be paid to the borrower at the end of the respective period. Quoted Interest Rate is the nominal rate which is computed by dividing the rate of interest by the number of periods. Interest rate per period is formulated as the rate which the lenders would be looking at when the rate is multiplied by the number of periods. An effective annual rate of interest is the compounding method of calculating the interest rate and it can be found out by dividing the interest rate into the number of periods and then compounding that with the respective number of years.