There are three ways to quote interest rates for investments paying interest more than once a year:
For example, a $1 investment earning 8% compounded semi-annually actually earns 8.16%: (1 + 0.08/2)2 - 1 = 8.16. The annual interest rate is 8%, and the effective annual rate is 8.16%.
If the nominal interest rate is 8%, find the effective annual rate with quarterly compounding.
Method 1: By Formula
m = 4, EAR = (1 + 0.08/4)4 - 1 = 0.0824
Method 2: Texas Instruments
You will use the Interest Conversion (ICONV) worksheet
Proceed as shown below:
Method 3: HP 12C
After you have set the calculator to END of period and cleared the financial registers, key in the nominal interest rate as a percentage.
Proceed as shown below:
We can also calculate the periodic interest rate given the effective annual interest rate.
| lazyluc: wrong formula? shouldn't it be rather|
(1+ periodic interest rate/m)^m ?
|fuller: the periodic interest rate = stated annual interest rate/m, as stated in the notes. So the formula is correct. i think what you meant was (1 + stated annual interest rate/m)^m|
|rickless3: the nominal interest rate is the annual interest rate. This rate may be paid out m times during that time, i.e. quarterly is m=4, monthly is m=12, etc. SO the annual percentage yield for a CD where the interest rate of 3.0% is compounded quarterly is calculated by APY = (1 + 0.03/4)^4 - 1 =(approx.) .03033 or 3.033%|
|10klub: Im using the BA II plus and i cant get that answer for anything.|
|10klub: i got it|
| Rotigga: The Correct Way for HP-12C|
8 [ENTER] : 8.0000
4 [Divide] i : 2.0000
4 [n] : 4.0000
100 [CHS] [PV] : -100.0000
[FV] : 108.2432
100 [-] : 8.2432
|adenisov: what is CD from the first point?|
|lexi: Similar to a fixed deposit|
| Khadria: Periodic Interest Rate = 4% compunding quarterly|
Stated Annual rate = 4% x 3 = 12%
EAR = [(1+.03)^4]-1 = 12.550881%
|Khadria: ! ! ! Sorry its 3% in the above example ! ! !|
| Sana07: I cannot get this calculation to work on the HP 12C Platinum calculator and I have used both the example as well as Rotigga's method but I get 16.99 and this I know is incorrect. Can somebody please tell me what the exact keystrokes on the HP 12C Platinum should be??|
Thanks, in advance!
| mirfanrana: for BA II plus|
down arrow key twice 4 ENTER
up arrow key once and press CPT
| challenger24: HP 12c platinum|
n = 2 FV = ?
i = 4 FV equals 1.0816 - 1
PV = -1 FV = 0.0816 * 100
PMT = 0 FV = 8.16%
| Bududeen: to sana07 & Challenger24|
hope this help
|raymondg: could somebody please explain for the BAII I cannot get the answer|
|uhupong: raymondg, just look at second method.|
|peteypete: if you have an education, you don't need to use the special functions on the calculator.|
|cleopatraliao: My BAII cant get it either...its weird... i followed the exact procedure as the instruction booklet...|
| callixtus: Find EAR if annual nominal rate of 7% is compounded daily.|
f CLEAR FIN
7 [ENTER] (nominal rate)
365 [n] [divide] [i] (daily rate)
CHS PMT FV
|callixtus: EAR = 7.25%|
|nwarrior: With the BAII Plus you need to push enter after entering the values, hope this helps.|
|Chl4072: What is EAC?|
| sinmani: BAII Plus - If you press 2nd ICONV you will see below;|
You have to provide 2 values i.e. C/Y = 4 and NOM = 8 for 3rd value press cpt and you will get the answer.
|dbedford: *** very important r/m = discount rate .... you’ll need this for questions in next couple of readings|
|dbedford: And r/m = periodic rate|
|kseeba17: This calculator is unbearable, such a waste of time. What good reason is there to not be able to see fractions and brackets...|