imported>Doug Williamson |
imported>Doug Williamson |
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| 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.
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| Market quotations are usually given per annum, and for this reason the term ''nominal rate'' is sometimes used interchangeably with nominal annual rate.
| | A market for financial assets when those assets are first offered for sale. |
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| | For example, on the flotation of a company or the issue of a bond. |
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| Different conventional market bases for expressing nominal annual rates have arisen in different markets over time.
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| Often this was originally for local or domestic convenience, but it can lead to difficulties of comparability between different markets. For this reason it is essential to know and understand the basis on which any given nominal annual rate is being quoted. It is always best to be explicit about [[day count conventions| conventions]] when dealing, rather than assuming and hoping for the best.
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| | | In relation to loans, the market in which the borrowers and the original lenders deal with one another. |
| ==Illustration==
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| Most rates in wholesale financial markets are quoted as nominal annual rates.
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| <span style="color:#4B0082">'''Example 1: Overnight interest'''</span>
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| 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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| = number of times the period fits into a conventional year x periodic rate
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| = 365 x 0.014%
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| = 5.11%.
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| ==Other names for Nominal annual rates==
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| The nominal annual rate is sometimes also known as a 'quoted rate', 'market rate, or 'nominal rate'.
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| The nominal annual rate should not be confused with the [[effective annual rate]], which is usually different.
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| ==Notation==
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| Nominal annual interest rates and yields are often denoted by 'R'.
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| This distinguishes them from periodic interest rates and yields (r), and from effective annual rates (EAR).
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| ==Conversion==
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| Using the notation above:
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| R = nominal annual interest rate or yield
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| r = periodic interest rate or yield
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| n = number of times the period fits into a conventional year
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| ====To convert from a periodic rate (r) to a nominal annual rate (R)====
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| R = r x n
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| <span style="color:#4B0082">'''Example 2: Calculating the nominal annual rate'''</span>
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| The periodic rate for GBP interest is 0.01% per day.
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| Calculate the nominal annual rate.
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| R = r x 365
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| = 0.01% x 365
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| = 3.65%
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| ====To convert from a nominal annual rate (R) to a periodic rate (r)====
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| r = R / n
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| <span style="color:#4B0082">'''Example 3: Calculating periodic rate'''</span>
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| GBP interest is quoted at a nominal annual rate of 5.11% for daily interest calculation.
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| Calculate the periodic rate per day.
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| r = R / n
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| = 5.11% / 365
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| = 0.014%
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| == See also == | | == See also == |
| * [[ACT/365 fixed]] | | * [[Float]] |
| * [[Compound]] | | * [[Flotation]] |
| * [[Continuously compounded rate of return]] | | * [[Secondary market]] |
| * [[Coupon rate]]
| | * [[Shallow discount bond]] |
| * [[Daily rate]]
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| * [[Day count conventions]]
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| * [[Effective annual rate]]
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| * [[Forward yield]]
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| * [[Money market]]
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| * [[Nominal]] | |
| * [[Nominal rate]]
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| * [[Periodic discount rate]]
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| * [[Periodic rate of interest]]
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| * [[Periodic yield]]
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| * [[Quarterly rate]]
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| * [[Rate of return]]
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| * [[Semi-annual rate]]
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| * [[Nominal annual yield]]
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| [[Category:Manage_risks]] | | [[Category:Corporate_financial_management]] |
