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© Steven J. Willis 2006 1
FINANCIAL CALCULATORS FOR
LAWYERS
Lesson FifteenInterest Rate Conversion
FINANCIAL CALCULATORS FOR
LAWYERS
Lesson FifteenInterest Rate Conversion
© Steven J. Willis 2006 2
Interest Rate Conversion
• In lesson five, we defined:
– Interest rate– Nominal rate– Periodic rate– Compounding period– Effective rate– Annual percentage rate– Simple yield– Yield– Yield to maturity– Internal rate of return
© Steven J. Willis 2006 3
Interest Rate Conversion
• In lesson five, we defined: define:
– Interest rate– Nominal rate– Periodic rate– Compounding period– Effective rate– Annual percentage rate– Simple yield– Yield– Yield to maturity– Internal rate of return
Lesson 5-A covered these
essential terms.
© Steven J. Willis 2006 4
Interest Rate Conversion
• In lesson five, we defined:
– Interest rate– Nominal rate– Periodic rate– Compounding period– Effective rate– Annual percentage rate– Simple yield– Yield– Yield to maturity– Internal rate of return
Lesson 5-B covered this
essential term.
© Steven J. Willis 2006 5
Interest Rate Conversion
• In lesson five, we defined: define:
– Interest rate– Nominal rate– Periodic rate– Compounding period– Effective rate– Annual percentage rate– Simple yield– Yield– Yield to maturity– Internal rate of return
Lesson 5-C covered these non-essential
terms.
© Steven J. Willis 2006 6
Interest Rate Conversion
• In lesson five, we defined: define:
– Interest rate– Nominal rate– Periodic rate– Compounding period– Effective rate– Annual percentage rate– Simple yield– Yield– Yield to maturity– Internal rate of return
All of these terms are more fully defined in
the accompanying text.
© Steven J. Willis 2006 7
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Periodic to effective.• Nominal to effective.• Effective to nominal• Nominal to periodic.
© Steven J. Willis 2006 8
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Periodic to effective.• Nominal to effective.• Effective to nominal• Nominal to periodic.
© Steven J. Willis 2006 9
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective.• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 10
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 11
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 12
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 13
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 14
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective.• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 15
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective.• Nominal to effective.• Effective to nominal.• Effective to periodic.
This is simple:
Just divide the nominal rate by the
periods per year.
This is simple:
Just divide the nominal rate by the
periods per year.
© Steven J. Willis 2006 16
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective.• Nominal to effective.• Effective to nominal.• Effective to periodic.
This is simple:
Just divide the nominal rate by the
periods per year.
This is simple:
Just divide the nominal rate by the
periods per year.
yrp
nai
/ yrp
nai
/
© Steven J. Willis 2006 17
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective.• Nominal to effective.• Effective to nominal.• Effective to periodic.
This is simple:
Just divide the nominal rate by the
periods per year.
This is simple:
Just divide the nominal rate by the
periods per year.
For example:
12% nai compounded monthly equals 1% periodic (per month):
12 12 = 1.
For example:
12% nai compounded monthly equals 1% periodic (per month):
12 12 = 1.
yrp
nai
/ yrp
nai
/
© Steven J. Willis 2006 18
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective.• Nominal to effective.• Effective to nominal.• Effective to periodic.
This is simple:
Just divide the nominal rate by the
periods per year.
This is simple:
Just divide the nominal rate by the
periods per year.
For example:
12% nai compounded monthly equals 1% periodic (per month):
12 12 = 1.
For example:
12% nai compounded monthly equals 1% periodic (per month):
12 12 = 1.
Or:
8% nai compounded quarterly equals 2% periodic (per
quarter):
8 4 = 2.
Or:
8% nai compounded quarterly equals 2% periodic (per
quarter):
8 4 = 2.
yrp
nai
/ yrp
nai
/
© Steven J. Willis 2006 19
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 20
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert a periodic rate to an effective rate, you could use
this formula:
To convert a periodic rate to an effective rate, you could use
this formula:
© Steven J. Willis 2006 21
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert a periodic rate to an effective rate, you could use
this formula:
To convert a periodic rate to an effective rate, you could use
this formula:
)( 1)1(100 100 pypreff )( 1)1(100 100 pypreff
© Steven J. Willis 2006 22
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert a periodic rate to an effective rate, you could use
this formula:
To convert a periodic rate to an effective rate, you could use
this formula:
)( 1)1(100 100 pypreff )( 1)1(100 100 pypreffeff = Effective Interest Ratepr = Periodic Interest Ratepy = Periods per Year (a.k.a., compounding period)
© Steven J. Willis 2006 23
Interest Rate Conversion
Or, to convert a periodic rate to an effective rate, you may use the interest
converter:
Or, to convert a periodic rate to an effective rate, you may use the interest
converter:
© Steven J. Willis 2006 24
Interest Rate Conversion
Or, to convert a periodic rate to an effective rate, you may use the interest
converter:
Or, to convert a periodic rate to an effective rate, you may use the interest
converter:
© Steven J. Willis 2006 25
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 26
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert a nominal rate to an effective rate, you could use this
formula:
To convert a nominal rate to an effective rate, you could use this
formula:
© Steven J. Willis 2006 27
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert a nominal rate to an effective rate, you could use this
formula:
To convert a nominal rate to an effective rate, you could use this
formula:
)( 1)1(100 100 pypynai
eff )( 1)1(100 100 pypynai
eff
© Steven J. Willis 2006 28
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert a nominal rate to an effective rate, you could use this
formula:
To convert a nominal rate to an effective rate, you could use this
formula:
)( 1)1(100 100 pypynai
eff )( 1)1(100 100 pypynai
effnai = Nominal Annual Interest Rateeff = Effective Interest Ratepr = Periodic Interest Ratepy = Periods per Year (a.k.a., compounding period)
© Steven J. Willis 2006 29
Interest Rate Conversion
Or, to convert a nominal rate to an effective rate, you may use the
interest converter:
Or, to convert a nominal rate to an effective rate, you may use the
interest converter:
© Steven J. Willis 2006 30
Interest Rate Conversion
Or, to convert a nominal rate to an effective rate, you may use the
interest converter:
Or, to convert a nominal rate to an effective rate, you may use the
interest converter:
© Steven J. Willis 2006 31
Interest Rate Conversion
To convert a nominal rate to an effective rate,
on an HP10BII:
To convert a nominal rate to an effective rate,
on an HP10BII:
© Steven J. Willis 2006 32
Interest Rate Conversion
To convert a nominal rate to an effective rate,
on an HP10BII:
To convert a nominal rate to an effective rate,
on an HP10BII:
1. Input the p/yr.
2. Input the nai.
3. Press eff.
1. Input the p/yr.
2. Input the nai.
3. Press eff.
12
Assuming 12 periods per year
(monthly compounding).
© Steven J. Willis 2006 33
Interest Rate Conversion
To convert a nominal rate to an effective rate,
on an HP10BII:
To convert a nominal rate to an effective rate,
on an HP10BII:
1. Input the p/yr.
2. Input the nai.
3. Press eff.
1. Input the p/yr.
2. Input the nai.
3. Press eff.
12
12 Assuming 12% nominal annual
interest.
© Steven J. Willis 2006 34
Interest Rate Conversion
To convert a nominal rate to an effective rate,
on an HP10BII:
To convert a nominal rate to an effective rate,
on an HP10BII:
1. Input the p/yr.
2. Input the nai.
3. Press eff.
1. Input the p/yr.
2. Input the nai.
3. Press eff.
12
10
© Steven J. Willis 2006 35
Interest Rate Conversion
To convert a nominal rate to an effective rate,
on an HP10BII:
To convert a nominal rate to an effective rate,
on an HP10BII:
1. Input the p/yr.
2. Input the nai.
3. Press eff.
1. Input the p/yr.
2. Input the nai.
3. Press eff.
12
10
Result is 12.682503013
12.682503013
© Steven J. Willis 2006 36
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 37
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert an effective rate to a nominal rate, you could use this
formula:
To convert an effective rate to a nominal rate, you could use this
formula:
© Steven J. Willis 2006 38
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert an effective rate to a nominal rate, you could use this
formula:
To convert an effective rate to a nominal rate, you could use this
formula:
)( 1100
1)1(100 pyeffpyNAI )( 1100
1)1(100 pyeffpyNAI
© Steven J. Willis 2006 39
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert an effective rate to a nominal rate, you could use this
formula:
To convert an effective rate to a nominal rate, you could use this
formula:
)( 1100
1)1(100 pyeffpyNAI )( 1100
1)1(100 pyeffpyNAInai = Nominal Annual Interest Rateeff = Effective Interest Ratepr = Periodic Interest Ratepy = Periods per Year (a.k.a., compounding period)
© Steven J. Willis 2006 40
Interest Rate Conversion
Or, to convert an effective rate to a nominal rate, you may use the
interest converter:
Or, to convert an effective rate to a nominal rate, you may use the
interest converter:
© Steven J. Willis 2006 41
Interest Rate Conversion
Or, to convert an effective rate to a nominal rate, you may use the
interest converter:
Or, to convert an effective rate to a nominal rate, you may use the
interest converter:
© Steven J. Willis 2006 42
Interest Rate Conversion
To convert an effective rate to a nominal rate,
on an HP10BII:
To convert an effective rate to a nominal rate,
on an HP10BII:
© Steven J. Willis 2006 43
Interest Rate Conversion
To convert an effective rate to a nominal rate,
on an HP10BII:
To convert an effective rate to a nominal rate,
on an HP10BII:
1. Input the p/yr.
2. Input the nai.
3. Press eff.
1. Input the p/yr.
2. Input the nai.
3. Press eff.
12
Assuming 12 periods per year
(monthly compounding).
© Steven J. Willis 2006 44
Interest Rate Conversion
To convert a nominal rate to an effective rate,
on an HP10BII:
To convert a nominal rate to an effective rate,
on an HP10BII:
1. Input the p/yr.
2. Input the eff.
3. Press eff.
1. Input the p/yr.
2. Input the eff.
3. Press eff.
12
12.6825
Assuming 12.6825 % effective
annual interest.
© Steven J. Willis 2006 45
Interest Rate Conversion
To convert a nominal rate to an effective rate,
on an HP10BII:
To convert a nominal rate to an effective rate,
on an HP10BII:
1. Input the p/yr.
2. Input the eff.
3. Press nai.
1. Input the p/yr.
2. Input the eff.
3. Press nai.
12
12.6825
© Steven J. Willis 2006 46
Interest Rate Conversion
To convert a nominal rate to an effective rate,
on an HP10BII:
To convert a nominal rate to an effective rate,
on an HP10BII:
1. Input the p/yr.
2. Input the eff.
3. Press nai.
1. Input the p/yr.
2. Input the eff.
3. Press nai.
12
12.6825
Result is 12.00000000
12.00000000
© Steven J. Willis 2006 47
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
© Steven J. Willis 2006 48
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert an effective rate to a periodic rate, you could use this
formula:
To convert an effective rate to a periodic rate, you could use this
formula:
© Steven J. Willis 2006 49
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert an effective rate to a periodic rate, you could use this
formula:
To convert an effective rate to a periodic rate, you could use this
formula:
py
eff pypyNAI )( 1100
1)1(100 py
eff pypyNAI )( 1100
1)1(100
© Steven J. Willis 2006 50
Interest Rate Conversion
• Often, you will need to convert one statement of a rate to another:
– You may convert:• Nominal to Periodic.• Periodic to effective..• Nominal to effective.• Effective to nominal.• Effective to periodic.
To convert an effective rate to a periodic rate, you could use this
formula:
To convert an effective rate to a periodic rate, you could use this
formula:
py
eff pypyNAI )( 1100
1)1(100 py
eff pypyNAI )( 1100
1)1(100
nai = Nominal Annual Interest Rateeff = Effective Interest Ratepr = Periodic Interest Ratepy = Periods per Year (a.k.a., compounding period)
© Steven J. Willis 2006 51
Interest Rate Conversion
Or, to convert an effective rate to a periodic rate, you may use the
interest converter:
Or, to convert an effective rate to a periodic rate, you may use the
interest converter:
© Steven J. Willis 2006 52
Interest Rate Conversion
Or, to convert an effective rate to a nominal rate, you may use the
interest converter:
Or, to convert an effective rate to a nominal rate, you may use the
interest converter: