Nominal interest rate is an annual rate that is compounded periodically. Usually, lenders refer to a nominal interest rate. The following instructions explain the procedures used to convert between nominal and effective interest rates, including the effect on interest rates when compound periods are different from the payment periods
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HP 17BII, 17BII+, and 19BII Calculator  Interest Conversion
Converting a nominal rate to an effective rate or an effective rate to a nominal rate
Follow the steps below to convert a nominal rate to an effective rate, or and effective rate to a nominal rate.

Press FIN, then the ICONV to display the ICONV menu. (ICNV on the 17Bii).

Select PER.

Key in the number of compounding periods per year, then press P.

To convert to the effective rate, key in the nominal rate and press NOM%, then press EFF%

To convert to the nominal rate, key in the effective rate and press EFF%, then press NOM%.
Example of converting a nominal rate to an effective rate
What is the effective annual interest rate if the annual nominal rate of 5¼% is compounded quarterly?
Keystrokes

Display

Description

Press FIN

Enter the financial menu


Press ICONV or ICNV

Enter the interest conversion menu.


Type in 4, then press P

P=4.00

Number of compounding periods

Type in 5.25, then press NOM%

NOM%=5.25

Nominal rate

Press EFF%

EFF%=5.35

Percentage effective rate.

Example of converting an effective rate to a nominal rate
Find the Nominal Rate if the Effective Rate is 7.23% compounded monthly.
Keystrokes

Display

Description

Press FIN, ICONV or ICNV

Enter the interest conversion menu.


Press PER

Inter the periodic conversion menu.


Type in 12, then press P

P=12

Number of compounding periods

Type 7.23, then press EFF%

EFF%=7.23

Effective rate

Press NOM%

NOM%=7.00

Percent nominal interest rate

Converting a nominal rate to a continuous effective rate
Follow these steps to convert a nominal rate to a continuous effective rate:

Press FIN, the ICONV to display the ICONV menu. (ICNV on the 17Bii).

Select CONT.

Key in the nominal rate and press NOM%, then press EFF%.
Example of converting a nominal rate to a continuous effective rate
What is the effective rate resulting from a 6 3/4% passbook rate with continuous compounding?
Keystrokes

Display

Explanation

Press FIN, ICONV or ICNV

Enter the interest conversion menu.


Press CONT

Enter the continuous compounding conversion menu.


Type 6.75, then press NOM%

NOM%=6.75

Nominal rate

Press EFF%

EFF%=6.98

Continuous rate

Compounding periods different from payment periods
Savings account deposits and withdrawals may not occur at the same time as the bank’s compounding periods. The TVM menu, however, assumes these two periods are the same. This procedure shows how to adjust the interest rate so the TVM menu can be used in situations when the compounding period is different from the payment period.
Adjust the annual interest rate to correspond to the payment period, then use the TVM menu to calculate the unknown value using these steps:

Enter the periodic interest rate conversion menu, Press FIN, ICONV, and then PER. On the 17Bii, press FIN, ICNV, and then PER.

Enter the compounding periods per year in P.

Enter the annual interest rate in NOM%.

Press EFF% to calculate the effective annual interest rate.

Enter the number of payments or withdrawals per year in P.

Press NOM% to calculator the nominal rate that corresponds to the payment period.

Press EXIT, EXIT, and then TVM, to enter the TVM menu.

Press STO I%YR to store the adjusted nominal rate in the TVM equation.

Enter the number of payments or withdrawals per year. Press OTHER, then P/YR, and set the to Begin or End mode.

Enter the remaining three of the four remaining variables in the TVM equation, PV, PMT, N, and FV, solve for the fourth variable.
note:
Maintain cash flow sign convention, money paid out is negative; money received is positive.
Example solving for the balance of a savings account
If you start today making monthly deposits of $25, in an account paying 5% interest compounded daily (365day bases). At the end of 7 years, what is the account balance?
Keys

Display

Description

FIN , TVM, orange shift key, CLEAR DATA

Clears the TVM register.


PER

Displays the periodic conversion menu.


365, P

P=365.00

Compounding periods.

5, NOM%

NOM%=5.00

Nominal interest rate.

EFF%

EFF%=5.13

Calculates the effective interest rate for daily compounding.

12, P

P=12.00

Deposit of withdrawal periods per year.

NOM%

NOM%=5.01

Calculates the equivalent nominal interest rate for the monthly compounding.

EXIT, EXIT, TVM

Enters the TVM menu.


STO, I%YR

I%YR

Enters the interest rate in to the TVM equation.

OTHER, 12, P/YR, BEG, EXIT

Enter 12 periods per year, sets to BEGIN mode and exits back to the main TVM menu.


7, orange shift key, N

N=84.00

Multiples the 7 years by the number of periods and enters in to the variable N.

25, +/, PMT

PMT25.00

Enters the amount of the deposits made and changes the sign.

0, PV

PV=0

Enters 0 in the present value.

FV

FV=2,509.14

Calculates the balance of the account in 7 years.

Calculating the interest rate
When the interest rate is the unknown variable, calculate I%YR in the TVM menu, this is the nominal rate. Then use the interest conversion menu to calculate the nominal annual interest rate corresponding to the compounding period.
Example of calculating an unknown interest rate
The bank statement indicates the interest earned for 1 month is $4.63. The beginning balance was $975.46. What is the interest rate the bank is quoting, assuming daily compounding on a 365day basis?
Keys

Display

Description

TVM

Enters the TVM menu.


orange shift key , CLEAR DATA

Clears the TVM register.


OTHER, 12, P/YR, BEG, EXIT

Enter 12 periods per year and sets to begin mode and exits to main TVM menu.


1, N

N=1

Enter the number of periods to 1.

975.46, +/, PV

PV= 975.46

Enters the beginning balance and changes the sign.

+/, +, 4.63, FV

FV=980.09

This adds the interest earned for this period to the beginning balance to make the ending balance.

I%YR

I%YR=5.70

Calculates the periodic interest rate.

EXIT, ICNV, PER

Displays the periodic interest conversion menu.


STO, NOM%

NOM%=5.70

Stores the nominal interest rate.

12, P

P=12.00

Enters the number of deposits per year.

EFF%

EFF%=5.85

Calculates the effective rate for monthly compounding.

365, P

P=365.00

Enters the number of compounding periods per year.

NOM%

NOM%=5.68

Calculates the nominal interest rate quoted by the bank.

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