Semi-annual rate: Difference between revisions
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The semi-annual rate is the simple annual interest quotation for compounding twice a year. | The semi-annual rate is the simple annual interest quotation for compounding twice a year. | ||
Coupon rates on bonds paying interest twice per year are generally expressed as semi-annual rates. | |||
This makes rates broadly comparable, while also enabling the amounts of fixed interest coupons to be determined easily. | |||
Revision as of 20:51, 12 January 2016
The semi-annual rate is the simple annual interest quotation for compounding twice a year.
Coupon rates on bonds paying interest twice per year are generally expressed as semi-annual rates.
This makes rates broadly comparable, while also enabling the amounts of fixed interest coupons to be determined easily.
Example: Semi-annual rate calculation
For example if the semi-annual rate is quoted as 4%, then the periodic interest accruing is:
= 4% x 6/12
= 2% per six month period.
A semi-annual rate is an example of a nominal annual rate.
The semi-annual rate is not to be confused with the periodic rate per 6 months, which in this case is 2%.
Nor should it be confused with the related annual effective rate, which in this case would be:
= 1.022 - 1
= 4.04%.
