Back to the full dot-point answer
QLDGeneral MathematicsQuick questions
Unit 4: Investing and networking
Quick questions on Comparing investments and effective interest rates (QCE General Mathematics Unit 4)
2short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is the effective rate formula?Show answer
If the nominal annual rate is (as a decimal) and interest compounds times per year, the effective annual rate is
What is using effective rates to compare?Show answer
To compare two products, compute the effective annual rate of each and pick the higher one for an investment or the lower one for a loan. This puts products with different compounding frequencies on a common annual footing, which is exactly what the effective rate is designed for. It is the same idea as a comparison rate quoted on real loans.
Have a question we have not covered?
This dot-point answer is short enough that we have not extracted many short questions yet. Read the full dot-point answer or ask Mo, our study assistant, in the chat for follow ups.