Semi-annual rate

From ACT Wiki
Jump to navigationJump to search

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%.

See also