The rate of interest assessed on a loan or investment over a set time period when compounding occurs more than once per year. The equation for determining the periodic rate is: pr = ar / n.Where: pr = periodic interest rate, ar = annual interest rate, n = number of times per year interest is compounded.For example, an annual interest rate of 6% compounded monthly would be an interest rate of .005 per month (06 / 12 = .005). This method of compounding results in more total interest being accumulated over the course of a year since interest is being charged on interest more often.
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