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Interest Anually, Compounded Continuosly

breadmaker wrote:

^ So the bank says it offers an EAR of 14% and you have to solve for the nominal annual rate:

1 +0.14 = er where r is the nominal annual rate, compounded continuously

ln (1.14) = ln [ er ]

r = ln (1.14)

r = 0.131028262

There is an ICONV worksheet on the BAII which lets you enter EAR, nominal rate and compounding frequency.  If I use frequency = 525,600, EAR =14, I get a NOM of 13.10282787, which is pretty darned close to the actual answer. yes

Thank you!

What if he gave the EAR of 14% with daily compounding, how would I solve the nominal rate?

ps: I`m a HP12c user and unfortunaly I can´t use that function you stated above (otherwise ikr I could just changed the frequency to 365)

I only know how to do nominal to effective…but not the inverse.

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ImBruces wrote:
I only know how to do nominal to effective…but not the inverse.

Algebra.

EAR = (1 + rnom/n)n − 1

1 + EAR = (1 + rnom/n)n

(1 + EAR)1/n = 1 + rnom/n

rnom/n = (1 + EAR)1/n − 1

rnom = [(1 + EAR)1/n – 1] × n

Simplify the complicated side; don't complify the simplicated side.

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