Economics Time Value Of Money Questions
The nominal interest rate refers to the stated interest rate on a loan or investment, without taking into account any compounding or other factors. It is the rate that is typically advertised or mentioned in loan agreements.
On the other hand, the annual percentage rate (APR) takes into consideration the effects of compounding and other fees associated with the loan or investment. It represents the true cost of borrowing or the true return on investment over a year, including any additional costs or charges.
In summary, the nominal interest rate is the basic rate stated, while the APR is a more comprehensive measure that includes additional costs and factors affecting the overall cost or return.