Nib and Nominal annual rate: Difference between pages

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The rate of return - or cost of borrowing - ''per annum'' named or quoted in a market, under the quoting convention for the given market.


Non Interest Bearing.
 
Market quotations are usually given per annum, and for this reason the term ''nominal rate'' is often used interchangeably with nominal annual rate.
 
 
<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:
 
= number of times the period fits into a conventional year x periodic rate
 
= 365 x 0.014%
 
= 5.11%.
 
 
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 formulae'''
 
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
 
 
<span style="color:#4B0082">'''Example 2'''</span>
 
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%
 
 
 
<span style="color:#4B0082">'''Example 3'''</span>
 
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%




== See also ==
== See also ==
* [[Interest]]
* [[Continuously compounded rate of return]]
* [[Coupon rate]]
* [[Daily rate]]
* [[Day count conventions]]
* [[Effective annual rate]]
* [[Money market]]
* [[Nominal]]
* [[Periodic discount rate]]
* [[Periodic rate of interest]]
* [[Periodic yield]]
* [[Quarterly rate]]
* [[Rate of return]]
* [[Semi-annual rate]]
* [[Nominal annual yield]]
 
[[Category:Manage_risks]]

Revision as of 17:03, 19 November 2015

The rate of return - or cost of borrowing - per annum 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 often 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%.


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 formulae

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%


See also