(2) Effective rate of discount, Nominal rates of interest and discount

1. Effective rate of discount, Nominal rates of interest and discount

PRESENTED BY: NADIA KERRE, OLIWIER LEWEC

2. Effective Rate of Discount - Intro

Effective Rate of Discount Intro
E ective rate of discount, denoted by d, is a measure
of interest where the interest is paid at the beginning
of the period.
The e ective rate of discount is the ratio of the amount
of discount during the period to the amount at the end
of the period.
How does interest differ from discount?
What do we mean by a statement such as
“A loan of $1,200 is made for one year
at an e ective rate of discount of 5%”?
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3. Example 1

What is the di erence between the
following two situations? (1) A loan of
$100 is made for one year at an e ective
rate of interest of 5%. (2) A loan of $100
is made for one year at an e ective rate
of discount of 5%.
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4. Mathematical Definiton of d

The e ective rate of
discount