Nominal Interest Rate and Effective Yield

When you go to a bank enquiring about the deposit rates, the rates specified by the bank can be expressed in two ways: nominal interest rate, and the effective annual yield. The difference between the two is that the nominal rate does not take the compounding into...

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Continuous and Discrete Compounding

When you invest a dollar today, you expect to receive more than a dollar after a period of time. The additional amount earned on your investment is the time value of money and is calculated based on the interest rate. There are primarily two ways of calculating...

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