Distinguish Between Stated Rate and Effective Rate
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1. Distinguish between the stated rate and the effective rate. Under what circumstances are these rates the same? Under what circumstances are these rates different? Please make sure to support your thoughts with appropriate examples.
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The solution distinguishes between stated rate and effective rate.
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STATED (NOMINAL) AND EFFECTIVE RATES OF INTEREST
Stated interest rate is also called nominal interest rate which is a rate of interest quoted for a year that has not been adjusted for frequency of compounding.
Effective interest rate is the actual rate of interest earned after adjusting the nominal rate for factors such as the number of compounding period per year (Vanhorne and Wachowicz, ...
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