Nominal Rates Intro

• When rates are paid more than once per period
• Compound is assumed
• Interest conversion period: Fractional portion of a larger period during which interest is paid
• Nominal rate of interest $i^{(m)}$ is payable/convertible/compounded $m$ times per period
  • $\frac{i^{(m)}}{m}$ is the effective interest rate during $m$
• When you say something is nominal annually, that doesn’t really make sense; it’s just the effective annual rate
• Nominal rates of interest don’t make sense for simple interest/discount because $i = i^{(m)}$ and $d = d^{(m)}$
• Accumulation function after $m$ subdivisions:

• Effective interest rate for any year: