Diffenece between various rates of interest

can you give an example of questions where you were not sure which one they were mentioning? because it’s kind of hard to explain how they ask it, usually its the regular yearly rate –> so you transform it into effective or whatnot

BEY is technically speaking a “double” of semi annual hhaha you may think of it that way I suppose, as long as you know how to convert between rates

@aanchalb

N=4.5 PV=-10,000 FV = 15,000
CPT I/Y = 9.429%

That would be EAR i supposed.

Then get the monthly rate (since it’s compounded –> (1 + r )^(1/12) )
so (1 + 0.09429 ) ^ 0.08333 = 1.007537 = 0.7537% (monthly rate)

Since APR is a simple rate (not compounded) 0.7537% * 12 = 9.04%

BEY = bond equivalent yield which i don’t think is relevant in your context –> (6-month rate) * 2

likewise, you could also use N=54 and you would get the rate of 0.75xx when you CPT I/Y.

from there
* 12 would be the simple rate (APR)
or
^ 12 would be the compounded rate (EAR)

@aanchalb @vincentt

I agree with how vincentt did this

the yield that your financial calculator gives you would be the effective rate to transform the initial 10,000 deposit into 15,000 -> EAR

@aanchalb yup that’s right APR is simple and EAR is compounded.

So by using what you did N = 54; PV = -10,000; FV = 15,000; CPT I/Y = 0.75369% (the rate for 1 month)

Then to annualised it, here are the steps:

APR (simple or non compounding)

0.75369% * 12 = 9.04428%

EAR (compounding)

0.75369% —to compound you have to convert to decimals—> 0.0075369

To annualise it 1 + rate to the power of 12:

( 1 + rate) ^ 12 = ( 1 + 0.0075369) ^ 12 = 1.094288 – 1 = 0.094288 –> 9.4288%

Hope that helps.