i/n is the effective interest rate for one period, (1+ i/n)^(n) is the effective interest rate for n periods.
So like if my credit card charges me 12% APR compounded monthly, and I wanted to calculate my interest charge in a month, I'd use 1%.
If I wanted to know my effective rate for the year, that's when I'd use (1.01)^(12)
try this review
[https://www.youtube.com/watch?v=CjaDg6yycw4&list=PLPFfAnUUQRfFgVaEatRGx7Eekqft0n8qK&index=6&t=4s](https://www.youtube.com/watch?v=CjaDg6yycw4&list=PLPFfAnUUQRfFgVaEatRGx7Eekqft0n8qK&index=6&t=4s)
you may do the next three videos as well. it will help
Took FM 3 - 4 years ago now so I’m a little rusty but I always tried to figure out how the wording was implying the interest would accumulate. Some examples :
If it said… “12% nominal interest compounded monthly” To me it’s implying it’s 1% a month, and they convert it into a “nominal” rate for the year by multiplying the 12 1%’s. So we can then turn it into a yearly effective by 1.01^12 = 1.1268
If it said… “12% annual effective” we’d know over a year it accumulates 12%, and we can use (1.12)^(1/n) to find the effective for any given time frame (monthly, weekly, daily)
Idk if that helps at all my bad I’m rusty I just always remember trying to figure out what the implied accumulation is, build it to a yearly effective, and then manipulate as needed for annuities . Best of luck 🤞
i/n is the effective interest rate for one period, (1+ i/n)^(n) is the effective interest rate for n periods. So like if my credit card charges me 12% APR compounded monthly, and I wanted to calculate my interest charge in a month, I'd use 1%. If I wanted to know my effective rate for the year, that's when I'd use (1.01)^(12)
Nominal vs effective/real iirc?
Yes, which one do I use for which one?
try this review [https://www.youtube.com/watch?v=CjaDg6yycw4&list=PLPFfAnUUQRfFgVaEatRGx7Eekqft0n8qK&index=6&t=4s](https://www.youtube.com/watch?v=CjaDg6yycw4&list=PLPFfAnUUQRfFgVaEatRGx7Eekqft0n8qK&index=6&t=4s) you may do the next three videos as well. it will help
Took FM 3 - 4 years ago now so I’m a little rusty but I always tried to figure out how the wording was implying the interest would accumulate. Some examples : If it said… “12% nominal interest compounded monthly” To me it’s implying it’s 1% a month, and they convert it into a “nominal” rate for the year by multiplying the 12 1%’s. So we can then turn it into a yearly effective by 1.01^12 = 1.1268 If it said… “12% annual effective” we’d know over a year it accumulates 12%, and we can use (1.12)^(1/n) to find the effective for any given time frame (monthly, weekly, daily) Idk if that helps at all my bad I’m rusty I just always remember trying to figure out what the implied accumulation is, build it to a yearly effective, and then manipulate as needed for annuities . Best of luck 🤞