Final answer:
The annual effective interest rate is the rate at which interest is earned or paid on an investment over a year, taking into account the compounding of interest. To calculate the annual effective interest rate, use the formula (1 + i) = (1 + r/m)^m, where i is the annual effective interest rate, r is the nominal interest rate, and m is the number of compounding periods per year.
Step-by-step explanation:
An annual effective interest rate is the rate at which interest is earned or paid on an investment over a year, taking into account the compounding of interest. To calculate the annual effective interest rate, you can use the formula (1 + i) = (1 + r/m)^m, where i is the annual effective interest rate, r is the nominal interest rate, and m is the number of compounding periods per year. For example, if the nominal interest rate is 6% and the interest is compounded monthly (m = 12), the annual effective interest rate would be (1 + 0.06/12)^12 - 1 = 6.1678%.