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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 scheduleThanks in Advance!
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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