Nominal and Effective Interest Rates

In all our examples in the previous section, we implicitly assumed that payments are received once a year, or annually. However, some of the most familiar financial transactions in both personal financial matters and engineering economic analysis involve nonannual payments; for example, monthly mortgage payments and daily earnings on savings accounts. Thus, if we are to compare different cash flows with different compounding periods, we need to address them on a common basis. The need to do this has led to the development of the concepts of nominal interest rate and effective interest rate.

FIGURE 17.2.5 Expected power expenditure over the next 5 years due to deteriorating leaks if no repair is performed (Example 17.2.4).
Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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