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Different types of rates of interest

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Different types of rates of interest

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by P2-D2.
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  • Author
    Posts
  • February 25, 2017 at 4:13 pm #374176
    sidrajam
    Member
    • Topics: 28
    • Replies: 13
    • ☆

    Hello Sir,

    How to tell the difference which interest rate is used in particular situation for loans/instruments.

    Fixed interest rate
    Market rate
    Nominal rate
    Effective rate
    Original effective rate
    Effective rate under revised payment schedule

    Thanks in Advance!

    February 27, 2017 at 5:57 pm #374606
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7156
    • ☆☆☆☆☆

    Nominal/coupon interest is the rate attached to the bond itself and is applied to the nominal value of the bond. This is a fixed rate of interest on the bond.

    Effective rate is the rate calculated taking into account the substance of the bond (i.e. being issued at a discount and redeemed at a premium). The effective rate is essentially the market rate and is the original effective rate.

    Any change to the effective rate due to any impairment is then the revised effective rate.

    Thanks

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