Sharp EL733A EL-733A Operation Manual - Page 36

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Vann) Fin mai t j inmi0 E Result: 3.93 To compute a nominal APR from this actual periodic rate, multiply by four (there are four quarters in a year): 0 40 Result: 15.71 ECTIVE INTEREST RATES Interest rate terminology can be confusing. There are "periodic rates," "nominal APR's," "actual APR's," "effective APR's," "actual effective APR's," "variable rates," "blended rates," "coupons," "yields," "returns," "finance charges," and a sea of other terms that depend upon who you are talking to and what field of finance you are discussing. As you wade through this sea of terminology, ask as many questions of the people you are dealing with as you must to clarify the situation and to draw a cash-flow schedule. Keep in mind that the most important rate to know for financial calculations is the periodic rate. This is the rate that regulates how money grows from one period to the next. The other rates that are quoted are always calculated starting with the periodic rates. One common way to quote an APR (annual percentage rate) is to multiply the periodic rate by the number of periods in a year. But as described earlier (page 47), this "nominal APR" is more of a convenient approximation of what actually happens than an accurate reflection of the interest paid. It does not incorporate compounding, which can be significant at the higher interest rates. The effective APR is an annual percentage rate that does incorporate compounding. On that $100.00 savings account back on page 37, the nominal APR for the account was 18%, but the balance of the account after compounding this rate for a year was $119.56. By the fact $19.56 was earned on $100.00 in one year, you can say that the effective APR during that year was 19.56%. By compounding an 18% APR monthly, you boost the effective APR to 19.56%:

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Vann)
Fin
mai
t j
inmi
0
E
Result:
3.93
To
compute
a
nominal
APR
from
this
actual
periodic
rate,
multiply
by
four
(there
are
four
quarters
in
a
year):
0
4
0
Result:
15.71
ECTIVE
INTEREST
RATES
Interest
rate
terminology
can
be
confusing.
There
are
"periodic
rates,"
"nominal
APR's,"
"actual
APR's,"
"effective
APR's,"
"actual
effective
APR's,"
"variable
rates,"
"blended
rates,"
"coupons,"
"yields,"
"returns,"
"finance
charges,"
and
a
sea
of
other
terms
that
depend
upon
who
you
are
talking
to
and
what
fi
eld
of
finance
you
are
discussing.
As
you
wade
through
this
sea
of
terminology,
ask
as
many
questions
of
the
people
you
are
dealing
with
as
you
must
to
clarify
the
situation
and
to
draw
a
cash
-flow
schedule.
Keep
in
mind
that
the
most
important
rate
to
know
for
fi
nancial
calculations
is
the
periodic
rate.
This
is
the
rate
that
regulates
how
money
grows
from
one
period
to
the
next.
The
other
rates
that
are
quoted
are
always
calculated
starting
with
the
periodic
rates.
One
common
way
to
quote
an
APR
(annual
percentage
rate)
is
to
multiply
the
periodic
rate
by
the
number
of
periods
in
a
year.
But
as
described
earlier
(page
47),
this
"nominal
APR"
is
more
of
a
convenient
approximation
of
what
actually
happens
than
an
accurate
reflection
of
the
interest
paid.
It
does
not
incorporate
compounding,
which
can
be
significant
at
the
higher
interest
rates.
The
effective
APR
is
an
annual
percentage
rate
that
does
incorporate
compounding.
On
that
$100.00
savings
account
back
on
page
37,
the
nominal
APR
for
the
account
was
18%,
but
the
balance
of
the
account
after
compounding
this
rate
for
a
year
was
$119.56.
By
the
fact
$19.56
was
earned
on
$100.00
in
one
year,
you
can
say
that
the
effective
APR
during
that
year
was
19.56%.
By
compounding
an
18%
APR
monthly,
you
boost
the
effective
APR
to
19.56%: