How do I calculate the nominal interest rate?

Annual interest rate is .15% How do I find the nominal interest rate?





If you deposit $2000 in this account, how much will be in the account after five years? Assuming that the current rate stays constant for the life of your deposit. Thank you.|||While talking about compound interest, whatever annual interest rate that is charged is called Nominal interest rate. However, if interest is monthly/quarterly/daily compounded whatever annual rate that is practically coming into effect would be different (slightly higher than the nominal rate). That rate is called Effective Rate of interest.





For example, if nominal rate is r = 12% and if interest is monthly compounded, the monthly rate would be 12/12 = 1%. And so, a sum of $100 will in 12 months be 100(1+r/12)^12 = 100(1.01)^12 = $112.68. Thus had the interest been annual, a rate equivalent to the above would be 12.68%. Thus the effective rate of interest is e = 12.68%. Note that nominal rate is r = 12%.


Formula


e = (1+r/12)^12 - 1 in the case of monthly compounding.


e = (1+r/4)^4 - 1 in the case of quarterly compounding.


e = (1+r/2)^2 - 1 in the case of half-yearly compounding.


e = (1+r/365)^365 - 1 in the case of daily compounding.


e = e^r - 1 in the case of continuous compounding.