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EduPristine>Blog>Finance Tutorial: Understanding Interest Rates

Finance Tutorial: Understanding Interest Rates

April 30, 2013

A thorough understanding of interest rates and their applications is a prerequisite for most financial certifications, but candidates are often found to be lacking in knowledge about this topic. This post will help you clarify doubts related to the different methods of representation of interest rates and develop an intuitive understanding of the topic. Other than posts like this one, we are also endeavoring to help candidates ace their CFA® and FRM exams, through a series of Free Webinars!! So let’s look at the different types of interest rates and their interpretations.

Type of interest rate representations:

 

Types of Interest Rates

 

Monthly Interest Rates

 

Conversions between the interest rate representations:

 

Interest Rate Conversions

 

Where,

NIR =Nominal Interest Rate

PIR =Periodic interest Rate

EAIR = Effective Annual Interest Rate

n=frequency of compounding of interest

Hope you found this useful. In case you require any further help on this topic or any other topic related to finance, please drop in a comment below.

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