How to calculate periodic interest rate?
Understand the Problem
The question is asking for the method to calculate the periodic interest rate, which is a common task in finance. The periodic interest rate can be derived from the nominal annual interest rate divided by the number of periods per year.
Answer
Divide the APR by the number of compounding periods in a year.
To calculate the periodic interest rate, divide the Annual Percentage Rate (APR) by the number of compounding periods in a year. For example, for a daily periodic rate, divide the APR by 365 (or 360, depending on the issuer).
Answer for screen readers
To calculate the periodic interest rate, divide the Annual Percentage Rate (APR) by the number of compounding periods in a year. For example, for a daily periodic rate, divide the APR by 365 (or 360, depending on the issuer).
More Information
Periodic interest rates allow borrowers and lenders to understand interest calculations on a more frequent basis (daily, monthly, etc.) compared to annual rates.
Tips
A common mistake is forgetting to adjust the number of periods for the type of periodic rate being calculated (e.g., daily vs. monthly).
Sources
- How to Calculate the Daily Periodic Rate - Chase Bank - chase.com
- Periodic Interest Rate: Definition, How It Works, and Example - investopedia.com
- Periodic Interest Rate Calculator - calculatorsoup.com
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