Using Templates | Description | Variables | Examples
Description
Comparing interest rates may be necessary when two investment possibilities present themselves. Investments are usually stated in terms of an annual, nominal interest rate (or annual percentage rate) but each investment often has a different number of compounding periods per year. To compare these investments, the interest rates must first be converted to an annual, effective interest rate.
Variables
- Method: either continuous or periodic conversion method. With periodic interest conversion, there is a set number of compounding periods per year, such as quarterly (4 times per year), monthly (12), or yearly (1). With continuous compounding, there is no set number of periods per year.
- Nominal%: the annual, nominal interest rate expressed as a percentage. For example, 8.25% is entered as "8.25".
- Effective%: the annual, effective interest rate expressed as a percentage. For example, 8.25% is entered as "8.25".
- Cmpnds/Yr: the number of compounding periods per year. For example, if interest is compounded quarterly, this value would be set to "4". Compounding periods per year is used only when the method is set to periodic.
Examples
Compare Investments
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