Calculate nominal rate of interest example problems
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What Is the Nominal Interest Rate?
Nominal interest rate refers to the interest rate before taking inflation into account. Nominal can also refer to the advertised or stated interest rate on a loan, without taking into account any fees or compounding of interest. The nominal interest rate formula can be calculated as: r = m × [ ( 1 + i)1/m - 1 ].
Where:
i=the effective rate
r=the stated rate
m=the number of compounding periods
Finally, the federal funds rate, the interest rate set by the Federal Reserve, can also be referred to as a nominal rate.
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