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Which type of interest rate reflects the effects of compounding?

User Zama Ques
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2 Answers

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Answer: For connections academy it’s APY

Explanation:

User Gabi Davar
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It is called effective interest rate.

For example, you invest in a bond wich pays 5% annual interest rate and it compounds semiannually.

The first semester you win 2.5% over the capital invested and in the second semester you win 2.5% over the capital plus the interested earned in the first semester. Then the effecive interest rate is higher than 5%.
User Buomsoo Kim
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