6% Interest Rate… Is It Really 6%? | Annual Equivalent Rate (AER) Explained

Have you ever wondered whether a 6% interest rate really means you earn exactly 6% in a year? 🤔💰 In this video, we take a practical look at Annual Equivalent Rate (AER) and learn how to calculate the true annual interest rate when interest is compounded monthly. Using a simple banking example, you will learn how to: ✅ Understand the difference between nominal interest rate and AER ✅ Understand what monthly compounding means ✅ Calculate the true annual interest rate earned ✅ Apply the AER formula to financial mathematics problems ✅ Solve similar exam and real-life banking questions with confidence 📌 Example: A bank offers a nominal interest rate of 6% compounded monthly. What is the true annual interest rate earned? Watch the video to the end and learn how to solve it step by step. If you find this lesson helpful, LIKE 👍, SUBSCRIBE 🔔, and SHARE it with someone studying Financial Mathematics.