Chapter5

Chapter5 - FIN3100: Chapter 5 Interest Rates Learning...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
FIN3100: Chapter 5 Interest Rates
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Learning Objectives Discuss how interest rates are quoted and compute the effective annual rate (EAR) on a loan or investment. Correctly account for the compounding periods per year. Explain the real rate of interest and the effect of inflation on nominal interest rates. Consider the history of interest rates in the United States.
Background image of page 2
Annual Percentage Rate (APR) This is the annual rate that is quoted by law By definition APR = period rate times the number of periods per year Consequently, to get the period rate we rearrange the APR equation: Period rate = APR / number of periods per year
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Effective Annual Rate (EAR) This is the actual rate paid (or received) after accounting for compounding that occurs during the year, where m is the number of compounding periods per year. If you want to compare two alternative investments with different compounding periods you need to compute the EAR and use that for comparison.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/06/2011 for the course ACCT 4050 taught by Professor Rodney during the Spring '11 term at UGA.

Page1 / 15

Chapter5 - FIN3100: Chapter 5 Interest Rates Learning...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online