Effective interest rate and average percentage return
Effective interest rate is also known as Effective annual rate, It is defined as an equivalent rate of some semiannual or other rates less than one year.
The annual percentage rate is defined as the interest rate per period multiplied by a number of compounding in a year.
EAR = [1+ APR/m]^m -1
where,
EAR = Effective annual rate
APR = Annual percentage rate
m = number of months= 2 for semiannually, 4 for quarterly, 365 for daily
Simple Rate: The interest rate quoted by the lender is called a simple rate.
Periodic Rate: The interest rate for each interest period such as monthly, quarterly, semiannually, or annually.
Periodic rate = APR / m
where, APR = annual percentage rate, and m= number of compounding periods in a year
