Final answer:
Bruncini describes "Effective" as a term used in the Financial Dictionary 7 (Ess of FD 7).
Step-by-step explanation:
In the Financial Dictionary 7 (Ess of FD 7), Bruncini defines "Effective" within the financial context. This term typically refers to the actual interest rate or yield earned on an investment, taking into account compounding over a given period.
It represents the true rate of return achieved after factoring in the effect of compounding, fees, or other charges. Mathematically, the formula for calculating the effective interest rate, iᵉ, considering an initial principal amount P, an annual nominal interest rate r, compounded n times per year, and held for t years, is given by:
iᵉ = (1 + r/n)^n*t - 1
Where 'n' denotes the number of times interest is compounded annually, and 't' represents the number of years the investment is held. Understanding the "Effective" rate is crucial for investors as it reflects the actual growth or cost of an investment, enabling better decision-making regarding various financial instruments.
This metric allows individuals to compare different investment options accurately based on their actual returns. Therefore, Bruncini's definition in the Financial Dictionary 7 offers insight into the essence of "Effective" within the financial domain, aiding in making informed investment choices.