![]() The annual interest rate is 8, and the effective annual rate is 8.16. Note that the higher the compounding frequency, the higher the EAC.įor example, a 1 investment earning 8 compounded semi-annually actually earns 8.16: (1 0.082) 2 - 1 8.16. The periodic interest rate is the stated annual interest rate divided by m, where m is the number of compounding periods in one year: EAR (1 periodic interest rate) m - 1. ![]() It is strictly a quoting convention, and it does not give a future value directly. ![]() It is the annual interest rate quoted by financial institutions and equal to the periodic interest rate multiplied by the number of compounding periods per year.įor example, the stated annual interest rate of the above CD is 3 x 4 12. Read about how we use cookies and how you can control them by clicking IFT Cookie Policy.įor example, a bank may state that a particular CD pays a periodic quarterly interest rate of 3 that compounds 4 times a year. These closely follow the curriculum and emphasize the most important points from each reading.ĬFA, Chartered Financial Analyst are trademarks owned by CFA Institute. You will get detailed video lectures for each reading and the lecture slides.
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