Financial institutions quote rates with different compounding periods.What is the term for the actual interest rate paid or earned?
A)Effective
B)Nominal
C)Real
D)Absolute

Question

Quizplus · Accepted Answer

The effective interest rate is the actual interest rate paid or earned after all compounding periods have been taken into account. The nominal interest rate is the rate quoted by the financial institution, but it does not take into account the compounding periods. Real interest rate takes into account inflation and absolute interest rate is not a commonly used term.

Financial Institutions Quote Rates with Different Compounding Periods