What is the true value of the interest rate computed by equations for compound interest for a 1-year period known as?

The true value of the interest rate computed by equations for compound interest over a one-year period is referred to as the effective interest rate. This term captures the actual return on an investment, achieving its values considering the effects of compounding. The effective interest rate is especially important in financial analysis because it reflects the total interest earned from the compounding that occurs within the specific time frame, thus providing a more accurate representation of the cost of borrowing or the return on investment compared to other rates such as nominal interest rates.

Nominal interest may not account for the compounding effect, which can lead to an underestimation of how much interest accumulates over the period. Expected return pertains more to projected or anticipated returns rather than the actual calculation based on compounding. Economic return, on the other hand, often takes into account various factors affecting overall profitability beyond mere interest, such as costs and market conditions. Therefore, effective interest rate is the most precise term to describe the interest rate that factors in compounding over the period in question.