Interest rate conversions, Investments with different compounding periods, Example: comparing investments – HP 10B User Manual

Page 74

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Interest Rate Conversions

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The Inlcrcsl Conversion application uses three keys:

BlNOM%l. BIEFF%L and M

I, They convert between

nominal and annual cfTective interest rates. Nominal and

effective interest rates arc described on page 47.

If you know an annual nominal interest rale and you wish to solve for the

corresponding annual effective rate:

1. Enter the nominal rate and press BlNOM%l.

2. Enter the number of compounding periods and press BIP/YRI.

3. Calculate the cITcctive rate by pressing ЯШЕЕЭ*

To calculate a nominal rate from a known effective rate:

1. Enter the effective rate and press

2. Enter the number of compounding periods and press

3. Calculate the nominal rate by pressing

ШШ-

1Ш1ЕЗ

In the TVM application, BlNOM%l and ll/YRl share the same register.

Interest conversions are used primarily for two types of problems:

■ Comparing investments with different compounding periods.

■ Solving TVM problems where the payment period and the interest

period differ.

Investments With Different Compounding Periods

Example: Comparing Investments.

You arc considering opening a

savings account in one of three banks. Which bank has the most favorable

interest rale?

5: Time Value of Money Calculatlont 71