Effective Interest Rate is used to compare the interest rates between loans with different periods , such as per period , for t Period , for Compounding Period . Using following formula -:
i = (1 + r / m)m - 1 Where i = Effective Interest Rate in decimal form I = Effective Interest Rate in percent m = Compounding Periods R = Rate of interest per period in percent r = Interest Rate in decimal form
it = (1 + i)t - 1 Where i = Effective Interest Rate in decimal form t = Time Periods
P = R / m Where m = Compounding Periods R = Rate of Interest per Period in Percent