Statistics & Applications > Financial Math

Medium

applied

If $r_{eff}$ = effective rate of interest, $r$ = nominal rate of interest and $m$ = number of conversion periods per year, the relationship between nominal rate and effective rate of interest is:

$r_{eff} = \left(1 - \frac{r}{m}\right)^m - 1$

$r_{eff} = \left(1 + \frac{r}{m}\right)^m - 1$

$r_{eff} = \left(1 - \frac{1}{r}\right)^m + 1$

$r_{eff} = \left(1 + \frac{m}{r}\right)^m - 1$

✅ Correct Option: 2

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