Time Value of Money
Table 3-6 Interest Rate Conversion Example
Keys | Display | Description |
365 I
>=
Inputs 365 as the value for the number of compounding periods per year.
Scrolls to the variable for the effective rate and calculates it. A 36.5% nominal rate compounded daily equals an effective rate of 44.03%.
Note: C/YR is the same number as P/YR in TVM calculations, since most interest calculations are based on the same number of payments and compounding periods per year, and interest rate conversions are commonly linked to a subsequent TVM calculation. This feature is provided for your convenience, but this means modifying one number also modifies the other. If your TVM problem requires different values for P/YR and C/YR, refer to the section below titled, Canadian Mortgages: TVM Canada.
The IConv menu permits you to solve for C/YR, but the result is not always a positive integer. TVM calculations, however, require C/YR to be an integer larger than zero. If you attempt to perform a TVM calculation without a valid value for C/YR or P/YR, an invalid P/YR error (ER: Invalid P/YR) will occur.
If you set C/YR to 0, the resulting interest conversions are calculated assuming a continuous compounding. As stated above, 0 is not a valid value for P/YR or C/YR when used in TVM calculations, and you will have to reset it to a valid value before performing TVM calculations.
To reset the menu items to their default values, with any item of the Interest Conversion menu displayed press :x. With IConv displayed, press Ito reset, or Oto cancel. To exit the menu, press Oonce again.
Canadian Mortgages: TVM Canada
Figure 4 The Menu Map for the P/YR Menu
In Canada, interest rates for mortgages are, by law, given as a nominal interest rate, compounded twice yearly. This means that the compounding period for the per-period interest rate calculation differs from the compounding period used to calculate the nominal rate.
By default, the HP 20b performs calculations assuming that the number of compounding periods always equals the number of payments per year. You can, however, enable the TVM Canada option in the Mode menu, which enables you to select the number of compounding periods per year. For more information, refer to Chapter 1, Basic Features.
36