Table 6-23 Calculating the interest rate (First bank)

KeysDisplay Description

\Ð

6.87

Calculates the annual effective rate.

 

Second Bank

Table 6-24 Calculating the interest rate (Second bank)

Keys

Display

Description

 

 

 

S7SV\Ó

6.65

Stores nominal rate.

 

 

 

JG\Í

12.00

Stores monthly compounding

 

periods.

 

 

 

\Ð

6.86

Calculates the annual effective rate.

 

 

 

 

 

Third Bank

Table 6-25 Calculating the interest rate (Third bank)

Keys

Display

Description

 

 

 

S7SD\Ó

6.63

Stores nominal rate.

 

 

 

DS:\Í

360.00

Stores compounding periods.

 

 

 

 

 

\Ð

6.85

Calculates the annual effective rate.

 

 

 

 

 

First Bank offers a slightly better deal since 6.87 is greater than 6.86 and 6.85.

Compounding and Payment Periods Differ

The TVM application assumes that the compounding periods and the payment periods are the same. Some loan installments or savings deposits and withdrawals do not coincide with the bank’s compounding periods. If the payment period differs from the compounding period, adjust the interest rate to match the payment period before solving the problem.

To adjust an interest rate when the compounding period differs from the payment period complete the following steps:

1.Enter the nominal rate and press \Ó. Enter the number of compounding periods in a year and press \Í. Solve for the effective rate by pressing \Ð.

2.Enter the number of payment periods in a year and press \Í. Solve for the adjusted nominal rate by pressing \Ó.

80 Time Value of Money Calculations