Equivalent RatesThe Equivalent Rates calculation is used to find the nominal annual interest rate compounded n times a year equivalent to a given nominal rate compounded m times per year.
Two nominal rates with different compounding frequencies are equivalent if they yield the same amount of interest per year (and hence, at the end of any period of time).
Input• nominal annual rate for the given rate• compounding frequency for the given rate• compounding frequency for the equivalent rate
Results• equivalent nominal annual rate• equivalent periodic rate
Example•
A bank offers 14.75 % compounded annually.
What would be the equivalent rate compounded monthly?InputGiven nominal annual rate:14.75 %Compounding frequency for given rate:annuallyCompounding frequency for equivalent rate:monthlyResultEquivalent nominal annual rate:13.8377 %
Answer: 13.8377%.
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If you are given one rate, x/y then multiply (or divide) both numbers by any non-zero number. You will have an equivalent rate.
If you are given a rate of x to y then the equivalent unit rate is x/y to 1.
The annual equivalent rate is 15.5625%. The amount invested is irrelevant to calculation of the equivalent rate.
14.651
They have a constant rate or ratio.