wikiHow Calculating Effective Interest Rate Glossary * Principal: The initial amount of money borrowed or invested. * Interest: The amount charged for borrowing money, expressed as a percentage of the principal. * Annual Percentage Rate (APR): The interest rate charged on a loan or investment on an annual basis, including any fees or charges associated with the loan or investment. * Nominal Rate: The stated or advertised interest rate on a loan or investment, which may not take into account compounding. * Compounding: The process of earning interest on interest already earned, resulting in an increased rate of return on an investment or a higher cost of borrowing. * Simple Interest: A type of interest calculation that is based solely on the principal amount borrowed or invested, without compounding. * Effective Annual Interest Rate (EAR): The actual annual interest rate earned or paid on a loan or investment after taking into account the effect of compounding. * Periodic Rate: The interest rate charged or earned during a specific period, such as a month or a quarter. * Payment Period: The frequency of payments made on a loan or investment, such as monthly or annually. * Amortization: The process of paying off a loan over time through regular payments, which includes both the principal and interest. * Discount Rate: The rate of return used to calculate the present value of future cash flows, often used in discounted cash flow (DCF) analysis. * Yield: The return on an investment, expressed as a percentage of the initial investment. * Present Value: The current value of a future payment or series of payments, calculated using a discount rate. * Future Value: The value of an investment or loan at a future point in time, calculated using a specified interest rate and compounding period. * Annuity: A series of regular payments made at equal intervals, such as monthly or annually. Page