Education Technology

Effective Annual Rate & Nominal Rate

Published on 06/09/2008

Activity Overview

In this activity, students use the effective annual rate calculation to compare the nominal rates of various financial instruments.

Before the Activity

  • Select TVM Solver from the calculator menu
  • See the attached PDF file for detailed instructions for this activity
  • Print page 13-14 from the attached PDF file for your class
  • During the Activity

    Distribute the pages to the class.

    Follow the Activity procedures:

  • Calculate the effective rate using the nominal interest rate and the number of compounding periods per year
  • Use the effective rate calculation to compare the yield for simple interest earnings versus compound interest earnings
  • Calculate the nominal interest rate given the effective rate and the number of compounding periods per year
  • After the Activity

    Review student results:

  • As a class, discuss questions that appeared to be more challenging
  • Re-teach concepts as necessary