(12C) Annualised Equivalent Rate & Continuously Compounded Rate

[Joe_H]

Sliderule

Yes your posts adds clarity for others coming here on what the difference is between AER (also called the effective rate) and APR (also called the nominal rate).

However, I'm going to change the program and split it into two separate programs: one for APR<->AER and one for i (either APR or AER) <-> CCR. The reason for this is that I thought about the AER/APR can go either way. For example, if we had an bank that compounded once a year at 5% and we wanted to compare it to a 90 day investment that returned 1.25%, we have to go back to the nominal rate (APR) so we need AER -> APR and not the other way round. In this case for AER of 5% APR is 4.91% and a quarterly interest would be 1.23% lower than the alternative investment.

Similarly, if the AER is given and we need the CCR for options pricing etc. it is also the opposite conversion.

In order to avoid using registers to store values (could mess up other cashflows in the calculator etc.) and to speed access to results for either of these programs X will be AER (assuming i=APR) and Y will be APR (assuming i=AER) for the periodically compounded program and in the CCR program X will be CCR (assuming i=APR) and Y will be CCR (assuming i=AER). I'll post them up here later today when I have them written and tested.

Joe