Interest Rate Converter

This converter will take an effective interest rate for one length of time and convert it to an effective interest rate for a different length of time. For example, if you earn 12% interest per year, what monthly rate would you have to earn for it to be equivalent? The answer isn't just 1% because you have to take compounding into account. The actual answer is: 0.948879%.

It's not often that you want a rate for a period of time other than a year, but it is useful in some instances when using the cash flow analysis calculator that I wrote.

The functions used are as follows:
Scale down to a smaller period: new_rate = ((1+rate)^(1/factor)) - 1
Scale up to a larger period: new_rate = ((1+rate)^factor) - 1

Scale down to a smaller period
Scale up to a larger period

Rate to convert as a percentage (e.g. 3.5% would be 3.5).

Scaling factor (e.g. 4 for scaling down from years to quarters or for scaling up from quarters to years).

Some Examples:

Scaling Down

Let's say you want to convert a yearly discount rate of 5% to the equivalent discount rate in terms of quarters. This means that if you were to apply this discount four times it would be equivalent to applying a 5% discount once.

First of all, you are scaling down to a smaller period, so make sure that button is selected. Enter 5 into the rate input area and enter a scaling factor of 4 (since there are four quarters in a year). Press the 'Submit your query' button and it will give you the answer, which is 1.227223%

Scaling Up

If you borrowed money and are paying 3% monthly, what yearly rate are you being charged?

Now you're scaling up to a larger period, so make sure the scaling up button is selected. Enter 3 for the rate and 12 for the factor and submit. It will return the rate of 42.576089%.

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Copyright 1999 by Truman Collins
For comments, email: Truman Collins (truman@tkcs-collins.com)
Most recent update: January 5, 2005
http://www.tkcs-collins.com/truman/cashflow/int_conv.shtml