Interest Rate Conversions; Investments With Different Compounding Periods - HP 10BII Owner's Manual

Interest Rate Conversions
'The Interest Conversion application uses three keys:
Qon), OER, and QAR. They convert between nominal
and annual effective interest rates. Nominal and effective
interest rates are described on page 49.
If you know an annual nominal interest rate and you wish
to solve for the corresponding annual effective rate:
1. Enter the nominal rate and press QEA.
2. Enter the number of compounding periods and press Ф.
3. Calculate the effective rate by pressing Є.
To calculate a nominal rate from a known effective rate:
1. Enter the effective rate and press QER.
2, Enter the number of compounding periods and press Б).
3. Calculate the nominal rate by pressing O@9.
In the TVM application, © and share the same register.
Interest conversions are used primarily for two types of problems:
= Comparing investments with different compounding periods.
= Solving TVM problems where the payment period and the interest
period differ.
Investments With Different Compounding Periods
Example: Comparing Investments. You are considering opening a
savings account in one of three banks. Which bank has the most
favorable interest rate?
First Bank 6.70% annual interest, compounded quarterly.
Second Bank 6.65% annual interest, compounded monthly.
Third Bank 6.63% annual interest, compounded 360 times per
year.
72 5:Time Value of Money Calculations