Engineering Economy, 5/e

Leland Blank, Texas A&M University
Anthony Tarquin, University of Texas - El Paso

Nominal and Effective Interest Rates

Learning Objectives

Purpose: Make economic calculations for interest rates and cash flows that occur on a basis other than one year.

This chapter will help you:

Understand nominal and effective interest rate statements.

Derive and use the formula for the effective annual interest rate.

Determine the effective interest rate for any time period.

Determine the correct method for equivalence calculations for different payment and compounding periods.

Make equivalence calculations for payment periods equal to or longer than the compounding period when only single amounts occur.

Make equivalence calculations when uniform or gradient series occur for payment periods equal to or longer than the compounding period.

Make equivalence calculations for payment periods shorter than the compounding period.

Calculate and use an effective interest rate for continuous compounding.

Account for interest rates that vary over time when performing equivalency computations.

2002 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.