The effective interest rate is 19.56%.
Financial products that pay interest disclose their interest rate. The nominal interest rate is as follows. On the other hand, the effective interest rate takes into account the effect of interest rate compounding, making it the real interest rate an instrument pays over a specific time period (often a year).
The nominal yearly interest rate is 18%.
1.5% is the interest rate per month. Therefore, a year's
nominal interest rate
(12 months) is 18%, or 12 x 1.5%.
The (annual) effective interest rate is 19.56%. (EIR).
[tex]$E I R=(1+(r / n))^n-1$[/tex], where r is the annual interest rate and n is the number of periods.
Here, [tex]$n=12$[/tex] and [tex]$(r / n)=.015$[/tex] or [tex]$1.5 \%$[/tex]. Therefore,
[tex]E I R=(1+.015)^{12}-1=.1956 \text { or } 19.56 \%[/tex]
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