Is the effective rate of interest ever numerically smaller than the nominal interest rate?

Effective Rate

The interest rate for a loan or financial product recalculated from its nominal rate to represent an annual compound interest rate, paid in arrears.

Nominal Interest

The stated interest rate of a bond or loan, not accounting for inflation or the compounding of interest.

Analyze the impact of changing compounding frequencies on the effective interest rate.

Verified Answer

Final Answer :

For all practical cases, the answer is no.

Learning Objectives

Analyze the impact of changing compounding frequencies on the effective interest rate.