# Interest Rate Conversions

Hi there I am trying to really understand interest rate conversions in a very simple way.

What I still can not really understand is when to simply divide and interest rate or when to raise it to the power of

Like if you have a 12% rate and you want the monthly rate… do you divide it by 12 or do you take it to the power of ^1/12

Is there a rule in general.

Thanks and not just for that example but in general??

There is no general rule. When the interest/coupon is compounding or is reinvested, one should use r^(number of periods). When there is no compounding and the interest is just drawn away, one should use simle multiplication or fractioning. Another thing is the matter of convention - i.e. BEY - bond equivalent yield. When you are determining what is the semi-annual interest rate on a bond which pays r% anuualy, you just divide r by 2 and that is it. Make as many test questions covering that area and the force will come to you.

Hi, can you refer to the chapter where it states that you should raise the rate to the power of 1/12?