imported>Doug Williamson |
imported>Doug Williamson |
| Line 1: |
Line 1: |
| (EAR).
| | Restrictions imposed by the central bank or other government authorities on the convertibility of a currency, or on the movement of funds in that currency. |
|
| |
|
| __TOC__
| |
|
| |
|
| 1.
| | == See also == |
| | | * [[Convertibility]] |
| A quoting convention under which interest at the quoted rate is calculated and added to the principal annually.
| | * [[Inconvertible currency]] |
| | |
| EAR is the most usual conventional quotation basis for instruments with maturities of greater than one year.
| |
| | |
| | |
| 2.
| |
| | |
| A conventional measure which expresses the returns on different instruments on a comparable basis.
| |
| | |
| The EAR basis of comparison is the ''equivalent'' rate of interest paid and compounded annually, which would give the same all-in rate of return as the instrument under review.
| |
| | |
| For this reason, 'EAR' is sometimes expressed as <u>equivalent</u> annual rate.
| |
| | |
| | |
| ==Conversion formulae== | |
|
| |
|
| ====Nominal annual rate to periodic rate====
| | [[Category:Cash_management]] |
| | |
| r = R / n
| |
| | |
| | |
| ''Where:''
| |
| | |
| r = periodic interest rate or yield
| |
| | |
| R = nominal annual rate
| |
| | |
| n = number of times the period fits into a conventional year (for example, 360 or 365 days)
| |
| | |
| | |
| ====Periodic interest rate or yield to Effective annual rate====
| |
| | |
| EAR = (1 + r)<sup>n</sup> - 1
| |
| | |
| | |
| ''Where:''
| |
| | |
| EAR = effective annual rate or yield
| |
| | |
| r = periodic interest rate or yield, as before
| |
| | |
| n = number of times the period fits into a calendar year
| |
| | |
| | |
| ==Calculating EAR from GBP overnight quote==
| |
| | |
| <span style="color:#4B0082">'''Example: EAR from overnight quote'''</span>
| |
| | |
| GBP overnight interest is conventionally quoted on a simple interest basis for a 365-day year.
| |
| | |
| So GBP overnight interest quoted at R = 5.11% means:
| |
| | |
| (i)
| |
| | |
| Interest of:
| |
| | |
| r = R / n
| |
| | |
| r = 5.11% / 365
| |
| | |
| r = 0.014% (= 0.00014) is paid per day.
| |
| | |
| | |
| (ii)
| |
| | |
| The ''equivalent'' effective annual rate is calculated from (1 + r).
| |
| | |
| 1 + r = 1 + 0.00014 = 1.00014
| |
| | |
| | |
| EAR = (1 + r)<sup>n</sup> - 1
| |
| | |
| EAR = 1.00014<sup>365</sup> - 1
| |
| | |
| EAR = '''5.2424%'''.
| |
| | |
| | |
| == See also ==
| |
| * [[ACT/365 fixed]]
| |
| * [[Annual effective rate]]
| |
| * [[Annual effective yield]]
| |
| * [[Annual percentage rate]]
| |
| * [[Calculating effective annual rates]]
| |
| * [[Capital market]]
| |
| * [[Certificate in Treasury Fundamentals]]
| |
| * [[Certificate in Treasury]]
| |
| * [[Continuously compounded rate of return]]
| |
| * [[Effective annual yield]]
| |
| * [[Equivalent Annual Rate]]
| |
| * [[LIBOR]]
| |
| * [[Nominal annual rate]]
| |
| * [[Periodic discount rate]]
| |
| * [[Periodic rate of interest]]
| |
| * [[Periodic yield]]
| |
| * [[Rate of return]]
| |
| * [[Real]]
| |
| * [[Return]]
| |
| * [[Semi-annual rate]]
| |
