Manually finding stated rate

If effective interest for a year is 7.74% and interest is paid semi annually, how to find the stated rate manually (without using calculator)?

(1 +int/2) ^ 2 = 1.0774
1 +int/2 = 1.0774 ^ 0.5
int = 2 x [(1.0774 ^ 0.5) - 1]

The BAII has a super eeeeasy way to do this. You won’t have time to do it the long, manual way in the exam. Just sayin’…

Thanks. Which steps you suggest while using BA II Plus calculator to solve the same problem ?

7.74 EFF 2 C/Y CPT NOM 7.59576

Quick and easy!!! :+1:

Thanks. Just curious… is there a way to get the same answer using TVM buttons on BA II Plus calculator?

ICONV is definitely the way to go, but it would be possible (but more keystrokes and time) to go with the TVM worksheet:

Invest $1,000 today and receive $1,000 * 1.0774 = 1,077.40 in exactly one year from now needs what rate compounded semi-annually??

P/Y= 1 C/Y=2 (this is key)
N 1 PV -1000 FV 1077.4 CPT I 7.59576

ICONV?? :+1: TVM?? :-1:

Thanks again. I have understood using both ICONV and TVM functions of calculator to get the answer. But have one more doubt…

In one of the step, you say this…

P/Y= 1 C/Y=2 (this is key)

What does C/Y stands for? If it stands for periods, is not it possible in some way to get answer as it is by setting C/Y to 1 but setting N to 0.5 or 2? If I should not do this, why not?

Have you finished the rest of the CFA syllabus.

Do you only want to do things the hardest way possible.

In studying and sitting the CFA exam time management is important.

The time you are spending thining about this you coulc be doing something else.
Likewise in the exam take the quickest possible route to the answer.

1 Like