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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA β FIA FMA › interest rate chapter
Sir, i am confused whether the APR which is annual interest rate is same as nominal interest rate or effective interest rate?
Please state how do we distinguish between them?
Thanks π
The APR is the effective annual rate.
In the exam it will be made clear which rate they want.
Have you watched my free lectures on this? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
Yes, I did watch it. But i have few questions in my mind like:
1) Nominal interest rate is the annual rate which is quoted by banks BUT the interest actually earned on deposit is different from nominal annual interest because the compounding effect causing the actual interest to be higher and it is called effective annual rate (i.e. APR). Is this correct?
2) Is it also true that nominal is an annual interest rate without compounding but effective interest rate is monthly/quarterly/daily etc.
3) Could you state what does “nominal” really mean?
Yes, that is correct.
Sir please answer my these two questions too:
1) Could you state what does βnominalβ really mean in accounting?
2) Do banks normally calculate the compound interest in the same way using compound interest formula as we’re told in the lecture?
Thanks for your understanding:)
1. ‘nominal’ is not a specific accounting term and means different things depending on the context.
2. Yes, banks will normally calculate interest in that way π