© 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: