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When only an interest rate per time span is given, then the stated rate is the
rate per compounding period (i).
“12% per year” implies that i = 12% per year and compounding is yearly so
r per year = i × m = 12% × 1 = 12%
i per year = (1 + 12%/1)
1
– 1 = 12%
When an interest rate per time span and a compounding period are given, then
the stated interest rate is the nominal rate (r) for that time span.
“12% per year compounded monthly” implies that r = 12% per year so
i per month = r/m = 12%/12 = 1%
i per year = (1.01)
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 Fall '08
 Moore,L

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