Nominal annual rate: Difference between revisions
imported>Doug Williamson (Link with Forward yield page.) |
imported>Doug Williamson (Amend 'per annum' to 'per conventional year', link with Conventional year page and apply Wiki headers.) |
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The rate of return - or cost of borrowing - ''per | The rate of return - or cost of borrowing - ''per [[conventional year]]'' named or quoted in a market, under the quoting convention for the given market. | ||
Market quotations are usually given per annum, and for this reason the term ''nominal rate'' is sometimes used interchangeably with nominal annual rate. | |||
===<span style="color:#4B0082">'''Example 1'''</span>=== | |||
<span style="color:#4B0082">'''Example 1'''</span> | |||
GBP overnight interest payable at the periodic rate of 0.014% per day, would conventionally be quoted on a nominal annual basis as: | GBP overnight interest payable at the periodic rate of 0.014% per day, would conventionally be quoted on a nominal annual basis as: | ||
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===Other names for Nominal annual rates=== | |||
The nominal annual rate is sometimes also known as a 'quoted rate', 'market rate, or 'nominal rate'. | The nominal annual rate is sometimes also known as a 'quoted rate', 'market rate, or 'nominal rate'. | ||
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===Notation=== | |||
Nominal annual interest rates and yields are often denoted by 'R'. | Nominal annual interest rates and yields are often denoted by 'R'. | ||
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===Conversion=== | |||
Using the notation above: | Using the notation above: | ||
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====To convert from a periodic rate (r) to a nominal annual rate (R)==== | |||
R = r x n | R = r x n | ||
====To convert from a nominal annual rate (R) to a periodic rate (r)==== | |||
r = R / n | r = R / n | ||
<span style="color:#4B0082">'''Example 2'''</span> | ====<span style="color:#4B0082">'''Example 2'''</span>==== | ||
GBP interest is quoted at a nominal annual rate of 5.11% for daily interest calculation. | GBP interest is quoted at a nominal annual rate of 5.11% for daily interest calculation. | ||
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<span style="color:#4B0082">'''Example 3'''</span> | ====<span style="color:#4B0082">'''Example 3'''</span>==== | ||
The periodic rate for GBP interest is 0.01% per day. | The periodic rate for GBP interest is 0.01% per day. | ||
Revision as of 15:07, 28 November 2015
The rate of return - or cost of borrowing - per conventional year named or quoted in a market, under the quoting convention for the given market.
Market quotations are usually given per annum, and for this reason the term nominal rate is sometimes used interchangeably with nominal annual rate.
Example 1
GBP overnight interest payable at the periodic rate of 0.014% per day, would conventionally be quoted on a nominal annual basis as:
= number of times the period fits into a conventional year x periodic rate
= 365 x 0.014%
= 5.11%.
Other names for Nominal annual rates
The nominal annual rate is sometimes also known as a 'quoted rate', 'market rate, or 'nominal rate'.
The nominal annual rate should not be confused with the effective annual rate, which is usually different.
Notation
Nominal annual interest rates and yields are often denoted by 'R'.
This distinguishes them from periodic interest rates and yields (r), and from effective annual rates (EAR).
Conversion
Using the notation above:
R = nominal annual interest rate or yield
r = periodic interest rate or yield
n = number of times the period fits into a conventional year
To convert from a periodic rate (r) to a nominal annual rate (R)
R = r x n
To convert from a nominal annual rate (R) to a periodic rate (r)
r = R / n
Example 2
GBP interest is quoted at a nominal annual rate of 5.11% for daily interest calculation.
Calculate the periodic rate per day.
r = R / n
= 5.11% / 365
= 0.014%
Example 3
The periodic rate for GBP interest is 0.01% per day.
Calculate the nominal annual rate.
R = r x 365
= 0.01% x 365
= 3.65%
