Financial institutions like to advertise the interest rates their products return to investors. Most ads list an annual percentage rate, which you can use to calculate the yearly return using the compound interest formula. Some ads, however, list an annual percentage yield, which is the net return and not the actual interest rate applied to the investment.
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- [Voiceover] Financial institutions usually advertise…the interest rates their products return to investors.…Most ads list an Annual Percentage Rate which you can use…to calculate the yearly return…using the Compound Interest Formula.…Some ads however, list an Annual Percentage Yield…which is the net return…and not the actual interest rate applied to the investment.…When you're comparing two or more investment opportunities,…you must make sure that all the investment's terms…are expressed using the same type of interest rate.…That is APR or APY.…
In this movie, I will show you how to convert…between APR and APY using two functions.…The sample file I will use is called…NominalAndEffective_01_05 and that is an Excel Workbook…you can find in the Chapter One folder…of the Exercise Files collection.…The two functions you will use,…and they're hinted at by the file name,…are Effective and Nominal.…Let's say that you have a product that is being advertised…at an APY, or effective rate, of five cents.…
You see that product listed here in columns A and B.…
- Analyzing loans, payments, and interest
- Calculating depreciation
- Determining values and rates of return
- Calculating bond coupon dates and security durations
- Calculating security prices and yields
- Calculating prices and yields of securities with odd periods
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Calculating Prices and Yields of Securities with Odd Periods
Additional resources1m 24s
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