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 look at the different types of interest rates and their interpretations.

Type of interest rate representations:

 

Conversions between the interest rate representations:

Where,

NIR =Nominal Interest Rate

PIR =Periodic interest Rate

EAIR = Effective Annual Interest Rate

n=frequency of compounding of interest

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